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Home / Tax Saving Tips / Mutual Fund Equity Linked Savings Scheme (ELSS)

Mutual Fund Equity Linked Savings Scheme (ELSS)

Published On: Dec. 31, 2017 By:
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Equity Linked Savings Scheme

Equity Linked Savings Scheme are equity funded type of mutual fund. Mutual funds can be largely categorised into three types on the basis of the asset classes they invest in. Equity and debt are the principal asset classes that mutual funds deposit their collected funds in. The following are the three main types of mutual funds present at the moment:

  1. Equity funds
  2. Debt funds
  3. Hybrid funds

What does ELSS stand for?

As per Section 80C, ELSS or Equity Linked Savings Scheme refers to tax­-saving mutual funds that can be utilized to shrink taxable income by almost Rs 1.5 lakh . Equity Linked Savings Scheme (ELSS) funds have a lock­-in interval of 3 years. Primarily, the investment is made in the stock market mostly.

Investment in ELSS funds

Investment in ELSS can be done via the fund company’s website. Investments can be done in lump sum, however the suggested way is by means of Systematic Investment Plans or SIP. According to most investment expert, the best way to invest in mutual funds by means of equity mutual funds is through SIPs. A SIP refers to a systematic investment plan. It is a method to invest analytically in a mutual fund. When a SIP is initiated, the mutual fund has to be given a directive to deduct a fixed amount intermittently from the bank account. In case an individual starts a monthly SIP of Rs 10,000 in a mutual fund, that specific amount will involuntarily be with held from the bank account. Thereafter, it will be invested in that mutual fund on the date decided earlier. Thus, SIP is an automated approach to invest.

Appropriate tax­ saving mutual funds

A variety of ELSS funds in the market are available. The most recommended ones are Axis Long Term Equity, ICICI Prudential Tax Plan, Birla Sun Life Tax Relief 96.

Risk involved in ELSS funds

ELSS funds don’t guarantee returns because they earn from investments in the equity market.However, the best­ performing funds have displayed the capability of generating inflation­ beating returns over the long­-term. This is something that fixed income tax­ saving investments like PPF and FDs cannot do.

What is the ELSS investment limit?

An Equity Linked Savings Scheme (ELSS) investment can be started with a minimum amount of Rs 500. There is no upper limit on how much you can invest in ELSS funds, but tax-saving can be availed on only a maximum of Rs 1.5 lakh a year.

What are the tax benefits of Equity Linked Savings Scheme (ELSS) funds?

Investments of Rs 1.5 lakh in ELSS funds earn a tax rebate under Section 80C every year. The returns generated on the investments are also tax­-free in the hands of the investor after completion of the 3­ year lock­-in period. In case of SIP investments, redemptions can be done on a first­-in­-first­-out basis since each individual SIP has a lock­-in of 3 years.

What is the ELSS investment tenure?

Equity Linked Savings Scheme (ELSS) funds have a lock­-in of 3 years. But you can stay invested in them, with or without further contributions, for as long as you want. You can also stop an ELSS SIP at any point, but the invested amount can be withdrawn only after 3 years.

Who can invest in ELSS funds?

Individuals as well as HUFs can invest in tax­-saving mutual funds. At present, most mutual fund companies do not accept investments from NRIs who are US and Canadian citizens. NRIs living in other countries can invest in ELSS funds.

Can I withdraw from ELSS funds?

ELSS funds do not allow premature redemptions before completion of the 3­ year lock­-in period.

How can I check my ELSS balance?

The mutual fund company sends ELSS investors quarterly statements about the performance of their investments. You can view your investment value even by using the online facilities of the mutual fund company.

Anything else I should know?

ELSS funds have two plan options: growth and dividend. The growth option is the recommended plan for long­-term wealth creation. Under the dividend option, the investor can choose between dividend payout or dividend reinvestment. The dividend received will not be taxable. If you choose dividend reinvestment, it will be treated as a fresh investment and you can claim tax benefit on it as well. Did you like this article? Let us know how the article was by commenting below. Don’t forget to share it with your friends & Family! You can also like us on Facebook and follow us on Twitter to stay updated! If you need any Startup Business Registration and Taxation help, please visit us at

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