Updated on 01.12.2025 @ 8:30 PM
Equity linked saving schemes mostly known as ELSS is a mutual fund scheme where your investments are eligible for deductions under 80C of the Income Tax Act.
It means your investment can get the benefit of equity appreciation and tax benefits altogether.
As per SEBI, ELSS has to invest at least 80% in equity or equity-related assets.
Currently, the maximum deductions allowed under 80C are 150000. However, each investment made in ELSS is locked in for 3 years from the date of purchase.
This means if you buy an ELSS today, you can’t redeem it before 3 years.
Benefits of investing in Equity linked saving schemes
- They are better options for taxpayers who want capital appreciation over the long run and also help them save tax.
- Equity linked saving schemes may deliver better results than traditional tax saving instruments like PPF(which offer fixed interest rates in a particular period of time)
- ELSS schemes are also well diversified across many sectors and stocks, reducing the risk of investments.
- Many ELSS schemes have options to start a fresh investment with as little as 100 rupees.
- You can choose among various ELSS schemes of many AMCs and can invest in more than one scheme while some traditional tax saving options like PPF do not provide such an advantage i.e. you can’t have more than one PPF account against your name.
- ELSS schemes provide you an advantage of stopping investment after the first investment while in PPF you have to make a mandatory contribution per year.
Also Learn About; What are the Index Funds in India?
Disadvantage of Equity Linked Saving Schemes
- Investment in ELSS is subject to market risk like other mutual fund schemes.
- All your investments are locked in for 3 years. You can’t redeem if you have an emergency.
- You can’t get benefits of income tax deductions above 150000 rupees. So, if you have more taxable income you have to look for other options.
Also Learn About; What are liquid funds?
FAQ:
1. What happens if I invest in ELSS every month — does each SIP have a different lock-in date?
Each investment you make in ELSS comes with a lock-in period of 3 years. So, if you invest on 1.11.2025 and 1.12.2025 and get allotted 25 and 35 units each time, the amount you invest will be locked for 3 years. It means the 25 units will be free by 01.11.2028 and the other 35 units will be free to redeem by 01.12.2028.
2. Does the market timing matter when starting an ELSS for tax saving?
No, you can’t time the market. In fact, nobody can time the market. If you are investing for the long term, any time is a good time to start. Also, stay away from people who claim they can time the market or say anything similar.
3. If two ELSS funds give tax benefits, how do I decide which one fits my risk level?
This depends on several parameters that help you choose the right fund. Some common factors to check are the expense ratio, past performance (although not guaranteed, it is a good indicator of how the fund has performed), the fund manager’s track record, and comparison with peer funds. These parameters can help you find an ELSS that matches your risk profile.
4. Does switching from one ELSS to another restart my 3-year lock-in?
Yes, switching from one ELSS fund to another—after the units are free to redeem—starts a fresh 3-year lock-in. The switch is treated as a new investment in the new ELSS fund.
5. Should I invest in more than one ELSS fund or stick to a single scheme?
This clearly depends on you. However, it’s usually better to invest in one good ELSS fund after analysing it properly. Having multiple ELSS funds doesn’t add much benefit and will only increase the time you spend tracking and analysing them. More funds mean more work. So, it is better to stick with one solid ELSS fund and evaluate its performance periodically.
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