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ELSS – Tax-saving Mutual Funds
Introduction
Equity Linked Saving Scheme (ELSS) is a type of mutual fund that helps you save tax under Section 80C of the Income Tax Act. It has the shortest lock-in among all tax-saving instruments and also offers the potential for high returns.
1. What is ELSS?
ELSS is a mutual fund that primarily invests in equity and equity-related instruments. It qualifies for tax deductions up to ₹1.5 lakh per annum under Section 80C.
- Lock-in period: 3 years
- Tax deduction limit: ₹1.5 lakh
- Type: Equity mutual fund
- Returns: Market-linked, can range 10–15% historically
2. ELSS vs Other 80C Options
| Instrument | Lock-in | Return Type | Approx. Returns |
|---|---|---|---|
| ELSS | 3 years | Market-linked | 10–15% |
| PPF | 15 years | Fixed | ~7.1% |
| NSC | 5 years | Fixed | ~7.5% |
| Tax Saver FD | 5 years | Fixed | ~6.5% |
3. Benefits of ELSS
- Dual benefit: Tax saving + wealth creation
- Lowest lock-in among 80C options
- SIP option available
- Potential for compounding over long-term
4. Tax Treatment
Returns from ELSS are subject to Long-Term Capital Gains (LTCG) tax.
LTCG Tax = 10% on gains exceeding ₹1 lakh in a financial year5. Things to Consider Before Investing
- ELSS returns are not guaranteed
- Choose a fund with consistent performance
- Invest early in the financial year to avoid last-minute decisions
Conclusion
ELSS is a smart choice for tax-saving and long-term wealth building. It suits salaried professionals looking to reduce taxable income while staying invested in equity for potential high returns.