What Is ELSS? A Complete Guide To Equity-Linked Savings Schemes
An Equity-Linked Savings Scheme is a type of mutual fund that primarily invests in stocks.
Come tax season, most of us scramble to find last-minute ways to save money. We ask around, Google a dozen options, and still end up confused between PPFs, FDs and others. If you are looking for something that not only saves tax but also has the potential to grow your money faster, say hello to ELSS (Equity-Linked Savings Scheme). It is a mutual fund that lets you invest in the stock market and reduce your taxable income.
What is ELSS?
An Equity-Linked Savings Scheme is a type of mutual fund that primarily invests in stocks (at least 80% of its portfolio). What makes ELSS special is that it's the only mutual fund eligible for tax deduction under Section 80C of the Income Tax Act. You can invest up to Rs 1.5 lakh in a financial year and get a tax benefit if you are under the old tax regime.
As of January 31, 2025, there are 43 ELSS schemes in India with a total AUM (Assets Under Management) of Rs 2.32 lakh crore, as per AMFI data.
Features of ELSS
Equity-based: Most of your money is invested in stock markets so there is higher risk but also higher return potential.
Tax-saving: Deduction of up to Rs1.5 lakh under Section 80C (old regime only).
Short lock-in: Three years, the shortest among all tax-saving instruments under 80C.
Flexible investing: You can invest via a lump sum or start small with SIPs (as low as Rs 500).
For lump sum investments, the countdown starts on the day you invest. For SIP investors, each monthly installment is locked in for 3 years individually. So, if you invest Rs 2,000 every month, your January 2025 installment will be available for withdrawal in January 2028, and so on.
ELSS: Tax Benefits
If you are under the old tax regime, you can claim up to Rs 1.5 lakh deduction under Section 80C.
This can translate to a tax saving of up to Rs 46,800 in a year (if you're in the 30% slab).
Returns after the 3-year lock-in are taxed as long-term capital gains (LTCG). Gains up to Rs 1 lakh per year are tax-free; above that, you pay 10% tax without indexation.
Is ELSS available in the new tax regime?
ELSS does not offer tax benefits under the new tax regime.
Even without the 80C tax benefit in the new regime, ELSS remains attractive for its high growth potential, short 3-year lock-in, flexible SIP/lump sum options, and strong average returns of around 14.5% over three years.
How to Invest in ELSS
Complete your KYC (with PAN, Aadhaar, and bank details).
Pick a fund based on its past performance, ratings and fund manager.
Choose your mode. Either a one-time lump sum or a monthly SIP.
Invest through trusted platforms or directly on the AMC's (Asset Management Companies) website.
Track your investment and decide post 3-year lock-in whether to redeem or continue.
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First Published:
July 14, 2025, 18:01 IST
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