Most of us look for tax saving options only in the month of March i.e the end of the financial year. At that point in time, you must be heard about the acronym ELSS. But instead of digging into waters ELSS, we make some random tax saving investment decisions.

What is ELSS?

It is a diversified equity mutual fund where the majority of the corpus is invested into equities. Investor enjoys two benefits one is he gets the market edge for his investment as well as he saves tax under the section 80C.

If you start a SIP under Equity Linked Savings Scheme, each investment would be locked in for three years from the respective date of investment. It comes in two options, one is the growth and another is the dividend. In growth, you get a LumpSum amount after completion of the lock-in period. In the dividend option, the investor gets the dividends. Whenever they are announced by the mutual funds’ house even during the lock-in period.

Returns under ELSS, a completely tax-free. There is no maximum limit of investment into it but tax exemption is available for a max of only 1.5 lakhs.

How to Invest in ELSS?

  1. If you have an online trading account, you can invest online.
  2. You can also invest offline by submitting an application form available with any distributor or the ELSS fund office. Although entry loads have been abolished, you may still have to pay some service fee if you go through a distributor. You could also invest directly through the website or the office of the mutual fund company. You can do this by downloading the form from the website and submitting it to the mutual fund office. Make sure you always write “DIRECT” as the broker code while submitting the form.
  3. The investment is Rs.500, so most investors should be able to invest in an ELSS fund.
  4. You can either invest a Lump Sum amount or invest under a systematic investment plan (SIP) where you invest a particular sum at regular intervals.

Please remember, every installment has a lock-in period of 3-years from the date of investment.

Now, let’s see the advantages and disadvantages of ELSS


  • Reduces taxable income up to a maximum of Rs. 15 lakh under section 80C.
  • It has low lock-in period that is of 3 years, unlike 5 years for tax-saving FDS, 5-10 years NSCS and 15 years for PPF.
  • The lock-in period ensures that you don’t pull out your money at the first need. Thus ensuring that your money stays invested.
  • Potential to earn much higher returns than with fixed deposits. In a good year, returns of 15% to 20% are possible, compared to around 8% to 10% in fixed deposits, NSCS and PPF.
  • The dividend received is tax-free.
  • Long-term capital gains made on ELSS investments are not taxable. So when you sell the units at the end of 3 years, you don’t have to pay long-term capital gain tax.


  • Your money gets locked for a period of 3 years. You can’t make part-withdrawals or take a loan on your investment during the lock-in period.
  • Since ELSS schemes invest in stocks, there is an element of risk involved. Invest only if you’re confident you can bear the risk.
  • Premature withdrawal is not allowed. You cannot get back your money before 3 years even in an emergency.

Also, read: What is Gratuity


My name is Manoj Prasad and I am the founder of this website( I always love to learn new things through different sources and whenever I get time, I shared those new things with my friends, family and with you.

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