Tax Savings

What Are ELSS Funds and How Are They Helpful for Tax Savings?


Equity-linked savings schemes (ELSS) funds are a type of mutual fund. The amount invested in these funds is locked in for a minimum of three years. However, the lock-in period for some schemes may be five years. ELSS funds offer tax deductions under Section 80C of the Income Tax Act, 1961. The maximum deduction available from ELSS investments is Rs 1.5 lakh per fiscal year. ELSS funds have the shortest lock-in period as compared to other tax-saving investments such as PPF, NSC, etc. The returns from ELSS are also exempted from tax. ELSS is thus a better investment option as it offers both tax savings and capital appreciation. If you are looking for a good investment option to save taxes, then you should consider investing in ELSS funds.

What is an ELSS Fund?

An ELSS fund is an equity-linked savings scheme that is offered by many mutual fund companies in India. ELSS funds are similar to other mutual fund schemes, but they have a lock-in period of 3 years. This means that you cannot withdraw your money before the 3-year period is up.

ELSS funds are invested in stocks and equity-related instruments. This makes them riskier than other types of mutual fund schemes but also potentially more profitable. The returns from ELSS funds are taxed at 10%, which is lower than the rate for most other investments.

ELSS funds are a good option for investors who are looking for a long-term investment with the potential for high returns. They can also be helpful for taxpayers who want to reduce their tax liability.

How Do ELSS Funds Work?

ELSS is a great option for new investors who are looking to make investing a habit. This is because the lock-in period discourages the investors from slacking off or prematurely withdrawing the money. One of the best things about ELSS funds is that they come with a low-income threshold of Rs 500.

The Benefits of Investing in ELSS Funds

ELSS funds are a great way to save on taxes. With the help of these funds, you can save up to 30% on your income tax. Moreover, they also offer a higher return than most other investment options.

There are many benefits to investing in ELSS funds. Some of the most noteworthy benefits are listed below:

Higher returns: ELSS funds offer higher returns as compared to most other investment options. This is because they are equity-based, and, hence, their value appreciation potential is high.

Tax saving: As ELSS funds offer income tax benefits of up to 30%, they help you save a significant amount of money on taxes.

Flexibility: ELSS funds offer great flexibility in terms of investment tenure and withdrawal. You can choose to invest for a minimum period of 3 years or for a longer duration at your convenience. Similarly, you can also withdraw your investments before the maturity period if needed.

Diversification: ELSS funds provide an opportunity to diversify your investment portfolio as they invest in a variety of asset classes like stocks, bonds, etc. This helps reduce your overall risk and maximize returns.

No need for a lump-sum investment: One of the best benefits of ELSS funds is that you do not need to have a lump-sum amount ready. You can choose the systematic investment plan (SIP) method and systematically compound your investment over months or years. You can select a date on which you will invest a predetermined amount in ELSS funds every month. An option to invest twice a year (every 6 months) is also available to investors. It is important to note that each SIP payment is considered a new investment, and the lock-in period will apply to it.

Two payout options: ELSS funds offer two payout options, namely, growth option and a dividend option. In the growth option, the investor gets the option to either withdraw the investment along with the accumulated profit at the end of the lock-in period or reinvest. As far as the dividend option is concerned, there are two alternatives. The first one is the dividend payout option, where the investor receives payment in the form of dividends at fixed intervals. The second option is the dividend reinvestment option. As the name suggests, in this option, the payout is reinvested and treated as a fresh investment. This fresh investment will be eligible for tax deductions.

How to Invest in ELSS Funds

There are a few things to keep in mind before investing in ELSS funds:

– Consider your investment goals and risk tolerance. As with any investment, it’s important to align your investment with your financial goals and risk tolerance. With ELSS funds, you can expect higher returns than fixed deposit investments but also greater volatility.

– Research different ELSS fund options. Not all ELSS funds are created equal; there will be variations in terms of performance, fees, and features. It’s important to compare different options and select the one that best suits your needs.

– Read the fund’s offer document carefully. This document contains important information about the fund, such as its investment strategy, objectives, risks, and charges. Make sure you understand all of this before investing.


If you’re looking for a way to save on taxes and grow your money at the same time, ELSS funds are definitely worth considering. Talk to your financial advisor to see if they’re right for you. The moderate risk and the option to systematically invest every month make ELSS funds a favorite among both new and seasoned investors. The multiple payout options, like the dividend and growth options, give investors more control over their portfolios. Depending on your personal financial goals, you can choose the suitable payout option. Investing can be a daunting task for those with no prior experience. We list in this blog everything you need to know about ELSS funds to make investing easier for you. If you liked this blog and found it helpful, you can read more such blogs on our website. Piramal Housing Finance is a one-stop solution for all your personal and business finance needs.