Equity Linked Saving Schemes – ElSS Funds Details, Features, Interest Rates, Taxation

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  • Post last modified:March 20, 2023

What Is Equity Linked Saving Schemes (ELSS)?

Equity Linked Saving Schemes (ELSS), is widely known as tax saving mutual funds, basically ELSS are equity oriented mutual funds. As the as major part of the assets are allocated to equities, a part of the corpus is also invested in debt instruments.

Equity Linked Saving Schemes (ELSS) is one of the best tax saving mutual funds scheme at present in India.

As per the SEBI regulations, ELSS funds have to invest at least 80% of their corpus in equity or equity related instruments.

ELSS falls under the category of ‘High Risk with High Returns’. These funds come with a lock in period of 3 years and qualify for tax deduction under Section 80C.

Investments in ELSS of up to Rs 1.5 lakh per financial year can be claimed as tax deduction under this Section. These schemes are also sponsored by the Government of India (GOI) to promote a habit of long-term investment among masses.

One can make a investment in ELSS funds either through systematic investment plan (SIP) every month or even through a lumpsum (one time) investment with as low as Rs.500.

ELSS investment portfolios are managed by trained and qualified fund managers who put in every bit of effort to protect the investors money and ensure high returns.

Having said that, the risk is always associated as it is a market linked scheme. However the average rate of return for ELSS Funds ranges between 10 to 15% p.a.

The lock in period for ELSS Funds is 3 years and hence it is one of the shortest lock in period among all the tax saving investment option as of now.

ELSS is an open-ended Equity Mutual Fund that not only is great for tax saving purposes but also creates a growth opportunity for your investment.

An open-ended fund allows investors to enter and exit the fund anytime after the NFO, whereas a close-ended fund restricts the entry and exit of investors to the NFO period.

NFO stands for New Fund Offer. When a mutual fund scheme offers its units for the first time for investments, it is known as a New Fund Offer (NFO). In its essence, a New Fund Offer is similar to an Initial Public Offering (IPO).

Another thing is, unlike close ended funds, open ended funds do not have a limitation on the number of units they can issue. More units of an open ended fund get created when an investor invests money in the fund.

Likewise, when an investor redeems units of an open ended fund, the mutual fund units are taken out of circulation.

While open ended funds allow investors to make use of systematic plans – systematic investment plans (SIPs), close ended funds do not support this facility.

You will be surprised to know that ELSS is the only mutual fund which qualifies for a tax deduction of up to Rs. 1.5 lakh annually under Section 80C of the Income Tax Act.

I hop you now have a basic understanding of what exactly is ELSS Funds?

You can check how much you will get if you make investments in Equity Linked Saving Schemes (ELSS) on maturity using MoneyContain ELSS Calculator For Monthly SIP And Lumpsum here.


How Much Will I Get If Invest In ELSS Funds?

When we talk about investments, the most important aspect is what kind of returns can be expected.

Returns can be quite varied in nature over a long period of time. Hence, it would be difficult to figure out what the eventual corpus would be at different expected rate of returns.

As ELSS is a market linked instrument the returns may not be guaranteed but historically if we see the average returns from ELSS ranges from 10 to 15% p.a.

Now suppose if you want to make Rs.5000 contribution per month in a ELSS Fund for 3 years at 15% p.a. then using the moneycontain ELSS Calculator we can easily calculate the returns:

Investment Amount Per Month = Rs.5000

Expected Return% (ROI) = 15%

Investment Period = 36 months (Minimum)

Amount You Will Get In Future (The value of your monthly SIP on maturity) = ₹2,28,399

Your Total Invested Amount = ₹1,80,000

Total Interest Earned on Investment made = ₹48,399

Similarly, suppose you wanted to invest in ELSS but instead of SIP per month you want it to be LumpSum.

As an example let us assume you invest Rs.2,50,000 for 3 years with an expected return of 15% p.a.

Total Investment Amount (One Time) = Rs. 2,50,000

Expected Return% (ROI) = 15%

Investment Period = 36 months (Minimum)

Amount You Will Get In Future (your total corpus amount) = ₹3,80,219

Total Interest Earned on Investment made = ₹1,30,219

Keep in mind you can invest for more than 3 years and the returns can be higher or lower based on how market have performed during the tenure.


Best ELSS Funds In 2023:-

Investments in ELSS can give you higher returns like equity while saving tax too. Although, past performances are no guarantee to the returns in the future, they do however help by showing how the fund held up during adverse market conditions.

Checkout the top performing ELSS Funds in 2023 in below image with last 3 and 5 years returns comparison.


Best ELSS Funds In 2021?
The returns are subject to market risk, Hence not guaranteed



Expense ratio depicts how much of your investment goes towards managing the fund. A lower expense ratio translates into higher take-home returns. So keep in mind you need to choose that fund, which has a lower expense ratio.

Start Free Investing In Best Mutual Funds Scheme (Equity, Debt, Hybrid, ELSS, ETF etc.) Online, Paper-less Within Minutes Now… 


Advantage Of Investing In ELSS Funds :-

Below are the list of major advantage you as an investor in ELSS Funds can get:


What Are The Benefits Of Investing In ELSS Funds?


Let us compare the tax benefits you stand to gain under different income brackets by investing in Equity Linked Savings Schemes (ELSS).

Checkout the below image in order to understand the Tax Benefits of Equity Linked Savings Schemes (ELSS).


What Are the Drawbacks Of Investing In ELSS Funds?
*Education cess of 2% and Higher education cess of 1% is included


Start your investment journey in mutual funds through SIP’s as low as Rs.500, Get free online account now here!!! 


Disadvantage Of Investing In ELSS Funds :-

There are two disadvantage that I find while choosing to invest in ELSS Funds:

First is the Long Term Capital Gain Tax also known as LTCG Tax, (Since 31 January 2018 ) this gets charges upto 10% if the interest earned is more than rupees 1 lakh in a financial year without any indexation benefit. Indexation refers to the process that computes the cost of the asset factoring in the inflationary price rises.

Long-term capital gains tax is levied on the capital gains from shares and equity-oriented mutual funds, that are held for one year or more.

Having said that, your annual income should also comes in range of current tax slab in India and even if it comes there are many tax exemption benefits you can take to avoid taxes in legal manner.

Therefore, the expectation of good CAGR returns is depended on stock market, which is in no way guaranteed like other government backed schemes such as Public Provident Fund (PPF).

So make your investment carefully and never make all investments in any one scheme at any time. Be diversified while doing investments of your hard earned money.


How Much Tax Can Be Saved Under Equity Linked Saving Schemes (ElSS)?

Under section 80C of Income Tax, one can avail tax benefit of upto ₹46,800 by investing upto 1.5 lakhs per year in ELSS. You can also invest more than 1.5 lakhs in ELSS, but tax benefit can not be availed on the investment exceeding ₹1.5 lacs per annum.

LTCG Tax, (Since 31 January 2018 ) this gets charges upto 10% if the interest earned is more than rupees 1 lakh in a financial year, It is levied on the capital gains from shares and equity-oriented mutual funds, that are held for one year or more.

Suppose you invested Rs.3 lakhs in ELSS funds and after 3 years of lock-in period, the corpus that gets created is Rs.5 lakhs, now the interest earned from this investment is Rs.2 lakhs which means, Rs.1 lakh can be covered under exemption and the 10% LTCG will be charged on remaining Rs.1 Lakh. 10% of 1 lakh is Rs.10,000.

This is the amount which will get deducted under LTCG TAX, having said that under Section 54F one can save LTCG deduction.

Moreover, An Investment upto 1.5 Lakhs in Equity Linked Savings Scheme (ELSS) qualifies for income tax exemption under Section 80C of the Income Tax Act, 1961.

This means that your taxable income reduces by the amount of investment you make in ELSS. The amount of tax you pay gets reduced as your overall taxable income has now reduced.



ELSS funds don’t have guaranteed returns because they earn from investments in the equity market. However, the best performing funds have displayed the capability of generating inflation beating returns over the long-term.

This is something that fixed income tax saving investments like PPF, FD, NSC,NPS etc. tax saving instruments cannot do.

Checkout the below image to get a comparison between them:


Returns are subject to change



How Much Can I Invest In ELSS Funds?

It depends on your financial goals, how much time you can give for investment as keeping in mind 3 year lock-in period, as well as your tax slab as an individual. There is no upper limit to make a investment in ELSS and the minimum is Rs.500.

However, the tax exempted amount is only Rs. 1.5 lakh in the financial year. One can also start with SIP or lump sum investment in ELSS. On a cautionary note make sure not to invest all money in any single scheme ever.


How Can I Start Investing in ELSS Funds?

Staring a investment in ELSS is as easy as making a online payment, thanks to dedicated online Apps and website such Zerodha, Upstox, Fyers, 5Paisa, which allows its users to make a investment using their platform online and the best part is they all offer a direct plan instead of a regular plans.

With regular plans the returns will be lowered as extra commission apart from the expense ratio will be charged therefore it is advisable to invest using direct plans. One can even create a login account in any Asset Management Company (AMC) and start investing directly.

Having said there is no need to open a demat account if you want to invest in ELSS Funds.


Can I Invest In ELSS Funds For More Than 3 Years?

Yes, Upon maturity of your ELSS fund, you can simply opt out from the scheme and the money gets credited to your linked bank account. One can even make a transfer of funds, moreover you can also invest the same amount again to reap the maximum benefit of power of compounding.


Can I Withdraw ELSS Funds Before 3 Years?

The simple answer to this question is No. ELSS investments do not provide the option to withdraw the investment amount before the end of the 3-year lock-in period. In ELSS, investors are given fund units against their invested amount. It is to these units that the lock-in period applies.


Which is better monthly SIP or Lumpsum in ELSS Funds?

Monthly SIP is better because of the “Rupee Cost Averaging factor”. Rupee Cost Averaging allows an investor to take advantage of the stock market volatility.

Through investing in a SIP, as an investor you will get more units when the Net Asset Value (NAV) is less and less units when the NAV is high. Which brings down the average cost of the all units over the long term investment.

Having said that Lumpsum SIP has its own advantage if you are buying it at the right time in right fund and when the Net Asset Value (NAV) is less which means you will have more units at a particular price and in long duration the NAV will be higher creating a bigger profit.

Other things with lump sum SIP is, there is no headache for every month keeping certain money in your account to maintain the SIP.



Investment in ELSS mutual is like “Killing two birds with one stone”. It not only serves as a tax saving option but also as a fantastic investment tool for wealth creation in the long term.

What makes it apart from other tax-saving options is its short lock-in period which is a minimum of 3 years.

ELSS also gives you the flexibility of choosing a diverse investment portfolio, including large-cap, mid-cap, small-cap, and others. Hence it is as of now one of the best investing option available to you in India.

If, you have liked the content please do share it with your friends or on social media, as sharing do bring the good karma. If you have any questions or feedback you can leave them in comment box below.

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Want to know how much you need to save and invest every month for your retirement goal then do check moneycontain retirement calculator with inflation here.  

Note: Please do not take this as any recommendation, to trade or invest. This is just for reference, to make you understand more about Equity Linked Saving Schemes and its importance, under no circumstances intended to be used or considered as financial or investment advice, a recommendation or an offer to sell, or a solicitation of any offer to buy any securities or other form of financial asset.

Please do your own research and make investment. Moneycontain will not be responsible for any of your losses at all. The point made is for educational purpose only. All investments are subject to risks, which should be considered prior to making any investments.

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