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Equity Linked Savings Scheme (ELSS): A Smart Investment Route To Save Tax And Build Wealth

Komal Bajpai

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Updated: 16-07-2025 at 3:34 PM

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With an increasing awareness of managing finances, Indian investors are now looking for ways to grow wealth and reduce taxes. One of the various instruments under Section 80C of the Income Tax Act, which Indian investors can take advantage of, is the Equity Linked Saving Scheme (ELSS) funds, as it provides them with the opportunity to enjoy tax deductions while eventually appreciating their long-term capital. ELSS mutual funds predominantly invest in equities, making them suitable for invest in investors willing to take risks to earn higher returns on their equity exposure.

What Is ELSS?

ELSS is a mutual funds that invest at least 80% in equity and equity-related instruments. ELSS have a 3-year lock-in period, which is the least among all tax-saving investment options. Investors can either invest via a lump sum or by SIP (Systematic Investment Plan) in ELSS. ELSS funds are market-linked, meaning they carry risk to an extent, but they also allow potentially higher returns in the long run.

Why Choose ELSS Over Other Tax-Saving Instruments?

ELSS funds are increasingly becoming popular due to their superior returns and flexibility. Here's how they compare with traditional instruments:

Instrument	Lock-in Period	Returns (Approx.)	Tax Benefit	Market Linked
ELSS	3 years	10–15% (historical)	Yes (up to ₹1.5 lakh under 80C)	Yes
PPF	15 years	7.1% (fixed)	Yes	No
FD (Tax Saver)	5 years	6–7% (fixed)	Yes	No
NSC	5 years	7–7.7% (fixed)	Yes	No

ELSS has the lowest lock-in period and the highest return potential, though the latter comes with higher volatility.

Also Read: Clubbing Of Income Under Section 64 Of The Income Tax Act Rule & Guidelines

Top Features of ELSS

Before you invest, it's important to recognise the distinct attributes of ELSS schemes from other mutual fund schemes. The attributes and tax benefits are detailed in the following points.

Tax Deduction: Investment amount up to ₹1.5 lakh under Section 80C.
3-Year Lock-in: ELSS cannot be redeemed before 3 years from the date of investment.
Equity-Oriented: ELSS must have a minimum 80% allocation in equity, which allows potential capital appreciation.
SIP & Lumpsum Options: Options allow investors to invest systematically in a fund.
Capital Gains Tax: LTCG (Long Term Capital Gain) over ₹1 lakh is taxed at 10%.

What Are The Advantages Of ELSS Investment?

ELSS education presents more than just tax savings - it can also present strong long-term asset growth, which is why market-educated investors are considering ELSS to be a practical and tactical choice.

High Return Potential

Since ELSS invests in equities, you might earn higher returns (than some other 80C instruments).

Shortest Lock-in Period

The lock-in period is only 3 years; other tax-saving options have lock-in periods of 5–15 years.

Wealth Creation

Over longer durations, ELSS can help you create a sizeable corpus through market returns and compounding.

SIP

The ability to invest disciplinedly through monthly SIPs is good for salaried individuals.

Maturity with nil tax liability

If you have total gains in a financial year of less than ₹1 lakh, the gains are tax-free.

Professional Management

Expert fund managers put their funds to work in the market based on experience and expertise.

Who Should Invest In ELSS?

Before you invest, make sure that Equity Linked Savings Schemes (ELSS) suit your financial plan, risk profile, and taxation needs. Below is a list of investor profiles who can use ELSS for wealth creation and tax savings.

First-time investors - Wanting exposure to the market with tax breaks for long-term returns.
Young Professional - Ready to build their wealth at a young age.
Salaried individuals - Wanting deduction under Section 80C.
Moderate to high-risk investors - Newer investors looking for a long-term return.

Also Read: Education Loan Under Section 80E Of the Income Tax Act

What Are The Things To Consider Before Investing In ELSS?

As with all market-linked products, ELSS has risk and opportunity requirements. Below are highlighted the essential factors to consider before acting.

Market risk - Your returns will be based on market performance, which can be volatile.
No withdrawal before lock-in - Your funds will be locked for 3 years, and you will be unable to withdraw early.
Gains above ₹1 lakh are fully taxable - So it is not completely tax-free.
And do not forget, each SIP instalment can be treated as a separate investment.

How to invest in ELSS?

You will find that getting started with your ELSS investment is easier than expected. To get started on the right foot, follow the steps below.

Step 1: Select a trusted AMC or mutual fund platform.

Step 2: Choose your preferred ELSS scheme (assessing past performance, fund manager, etc.).

Step 3: Complete your registration using your PAN, KYC documents, and bank account.

Step 4: Decide whether you want to invest in a lump, or go with SIP.

Step 5: Get used to ethical portfolio tracking, but only redeem or exit after 3 years.

Top Performing ELSS Funds in 2025 (Indicative)

To reap the benefits of your ELSS investment, you need to choose the right fund. The table below provides a list of top-rated ELSS funds according to recent performance.

Fund Name	5-Year CAGR	Expense Ratio	Fund Rating
Axis Long Term Equity Fund	13.2%	0.74%	4-Star
Mirae Asset Tax Saver Fund	15.1%	0.45%	5-Star
Canara Robeco Equity Tax Saver	14.5%	0.72%	5-Star
Kotak Tax Saver Fund	12.3%	0.60%	3-Star

(Note: Returns are subject to change based on market performance)

Conclusion

An investment in the Equity Linked Savings Scheme (ELSS) is an interesting investment that benefits an investor with tax savings (limited to a certain amount) while providing equity-linked returns. It is a great beginner-level investment for a long-term view to create wealth. With the short lock-in and the compounding potential, ELSS has an advantage among all Section 80C investments. Before investing, do check your investment goals and risk tolerance before proceeding.

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