ELSS - An Effective Tax saving financial instrument

One of the effective “Tax saving financial instrument” among other mutual fund investment is Equity Linked Saving Scheme(ELSS) which is mutual fund investment for getting advantage of tax benefits.

ELSS provides us with enormous positives features and advantages that can be helpful for us to save tax expenditures as well as to earn high returns at the end of the day.

As soon as wee begin our career, most of us fall under the income tax bracket though depending on our salary pakege. It is evident that there are various excellent methods available to save oue tax expenditure, our of which investment in equity-linked saving scheme (ELSS) is most popular mutual fund investments due to its lucrative nature. It has a shorter lock-in-period with a potential to deliver high returns. It gives us a tax benefit under section 80C of the income tax Act. However, the returns we gain are partially taxable. The long-term capital gains from an ELSS is exempt of tax, but only up to Rs 1 Lakh.

As already mentioned., the most productive difference between ELSS and other tax saving investment instruments like fixed deposits(6.50%  -  8.25%), public provident fund (8%), national saving certificate(8%), national pension scheme (10.81%) etc, which makes is so lucrative is its short term lockin period and high returns. Firstly if we consider lock-in period into consideration. ELSS has a lock-in period of three years while other financial investment have lock-in period minimum from 5 years to maximum upto retirement ages variably. Secondly, when it comes to return between 6.5% to 10.00% annually.

Unlike FDR, is we put a lump sum amount in ELSS by way of investing in SIPs which can be as loiw as Rs 500 per month.


However, on summing up, the advantages of ELSS can be considered as follows:

  • Short Lock-in Preiod: ELSS has lock-in period of three years while other financial instruments have lock-in period raging from 5 years to one’s retirement ages variably.
  • Tax-saving Option: It gives us a tax benefit under section 80C of the Income Tax Act. ELSS can have tax deduction of Rs 1.5 Lakh under Section 80C of the Income Tax Act. However, the return we gain are partially taxable. The long-term capital gains from an ELSS is exempt of tax, but only up to Rs 1 Lakh.
  • ELSS Plan: First one is the Dividend plan, where on investing we earn a regular dividend during the 3 year lock-in period. Second one is Growth Plan, where we earn a lumpsam amount after the lock-in period. We can switch over the plans its from a dividend plan to a growth plan in case of shortage of funds.
  • Good Returns: As ELSS funds provides us with diversified portfolio, it mitigates the risk of volatile stocks thereby providing us with higher returns on an aggregate.
  • Invest inthrough SIPs: ELSS gives us the option of investing either in a lumpsum or a SIP. We can also withdraw a fixed sum periodically during the lock-in period during our financial crunch.
  • No Investment Limit: There is no maximum fund limit to invest.

Wowever, inspite of the mentioned advantages ELLS also bears some disadvantages, which can be detailed as follows:

  • Difficult in choosing ideal stock portfolio, which in turn seek the help of a fund manager.
  • Lot of documentation.
  • Unguaranteed returns as investment in ELSS depends on market risk volatility.
  • Premature withdrawal during 3 years lock-in period is chargeable.
  • Difficult for NRIs for investing in ELSS.


Steps to invest in ELSS:

  • We build stock portfolio either by consuling with an effective fund manager or soley by checking various list of best ELSS available in money control website.
  • We opt an ELSS calculator to choose effective ELSS scheme – choose option of investment plan either SIPs plan or lumpsum plan – Enter amount to invest – Enter The period / 36 months or more – Check returns.
  • Once we choos ELSS scheme, KYC documentation is initiated which includes Passport photograph, proof of identity (any one of these): Passport, PAN, Aadhar, Driver’s Licence, Voter ID, Proof of address, Utility Bill, Ration Card.


  • We make first payment through cheque to the ELSS providers.






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