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12 Features of ELSS funds

  May 28,2021

Equity Linked Savings Scheme is a type of equity mutual funds that offers tax saving and wealth creation. Here are a few unique characteristics of ELSS that make it an ideal investment option.

1. What is Equity Linked Savings Scheme Funds?

Equity Linked Savings Scheme Funds (ELSS) also known as tax saving funds is an equity mutual fund that invests predominantly in equity stocks. ELSS funds offer tax exemption on a maximum investment amount of up to Rs. 1.50 lakh from your annual taxable income under Section 80C of the Income Tax Act, 1961. 

2. Where do ELSS funds invest?

ELSS funds invest in equity instruments such as stocks of listed companies. These funds allocate its investments across large, medium and small-sized companies. 

3. Get the power of equities

Historically, equity investments have outperformed other asset classes in the long-term. Investment in equity funds have the potential to help you fulfil your long term financial goals.       

4. Avail the dual advantage of wealth creation and save on tax

With ELSS, you can avail the dual advantage of wealth creation and save on taxes. As ELSS funds invest in equities, it has the potential to earn higher returns in the long term. Moreover, your returns from ELSS are deductible from the total income under Section 80C of the Income Tax Act, 1961. Hence, you get tax benefits with attractive returns through your investment in ELSS.

5. No limit on investment

There is no maximum investment limit on ELSS. You can earn market-linked returns on the entire investment amount. However, tax benefits on the investment are available up to Rs. 1.5 lakhs. 

6. Achieve your financial goals

As ELSS funds invest in equities with no cap on investment, it can help you achieve your long term financial goals such buying a house, planning for higher education and preparing for retirement.

7. Invest through SIP or onetime lump sum investment 

Lump sum and Systematic Investment Plan (SIP) are two popular ways to invest in ELSS funds. You can opt for a mix of both these investment options to gain the maximum advantage of investing in ELSS. In the SIP mode of investment, you need to invest a small amount of money over a period. Whereas, in case of lump sum investment, you invest in one go. 

8. Systematic Investment Plan (SIP) Facility

If you want to invest in ELSS through SIP, you don’t have to invest a large sum at one time or wait for the last moment. It is because you can plan your tax saving investment at the start of the financial year and invest in ELSS funds through SIP over the financial year. Although monthly SIP is a popular SIP frequency for salaried individuals, investors can opt for weekly, quarterly and half-yearly SIP frequencies as well. 

9. Low minimum investment amount

Investment in ELSS is affordable, as the minimum investment amount in ELSS fund through SIP is Rs.500. So, you do not worry about amassing a large corpus for investment. The low minimum amount makes it easy for different investors to invest in ELSS with no issue. 

10. Lowest lock-in period

The tax saving funds have the lowest lock-in period of 3 years. You can redeem your investments after three years without paying any penalty or exit load or continue to stay invested after the end of lock-in period. 

11. No mandatory exit period

There is no mandatory exit period of ELSS. You need not redeem your investments after the lock-in period of 3 years is over. You can stay invested in ELSS beyond this lock-in period until you are ready to redeem your investments. 

12. Tax on capital gains

Long Term Capital Gains on equity funds applies on ELSS funds as it has a lock-in period of three years. The capital gains from ELSS funds below Rs.1 lakh in a financial year is tax-free. The long-term capital gains above Rs.1 lakh in a financial year is taxed at the rate of 10%. 

Make a smart financial move by investing in ELSS. 


This blog is purely for educational purpose and not to be treated as an personal advice. Mutual fund investments are subject to market risks, Read all scheme related documents carefully.