ELSS-Tax-Saving Mutual Funds

As the name denotes, Equity Linked Savings Schemes (ELSS) or tax saving mutual funds are Mutual Fund investments in equity markets that qualify for tax exemption under Section 80C of the Income Tax Act. A maximum amount of up to ₹1.5 lakh invested in these tax saving Mutual Fund schemes every year, can be deducted from an investor’s total taxable income.

Though other tax saving investment schemes — like the Provident Fund (PF), National Pension Scheme (NPS) and National Savings Certificates (MSC) — exist, an ELSS can offer the highest returns out of all. These higher returns are accompanied by higher risks, as the funds are invested in equity markets and are subject to market forces. Here’s a detailed look at ELSS, how it compares with other tax saving investments and why you should invest in ELSS.

Differences between ELSS and other Mutual Funds

• An ELSS differs from other Mutual Funds since an ELSS investment (up to a maximum of ₹ 1.5 lakh every year) can be deducted from total taxable income if invested in ELSS.


• The investments made into an ELSS have a lock-in period of three years, during which the funds can’t be withdrawn. Other Mutual Fund investments don’t have such a lock in period (except for some closed end Mutual Funds).


• An investment can be made once in a lump sum, or even at regular intervals after signing up for a Systematic Investment Plan (SIP).


• In a SIP, the funds invested in the first year become redeemable after four years, those invested in the second year become redeemable after five years and so on. The entire investment sum becomes redeemable three years after the last investment.

You should note:

• The investments are subject to market risks, as funds are invested in the equity market.
• The returns are not guaranteed by the government.

Comparison of ELSS (Equity Linked Savings Schemes) with other Tax saving schemes

• Equity Linked Savings Schemes offer a much higher return at around 15% per annum, which compounds over time, though some market-risk is present.


• The schemes have the lowest lock-in period of just three years, while the returns are tax-free.


• ELSS, like other Mutual Funds, might be offered as dividend plans (pays out interest automatically at periodic intervals which can be then reinvested), growth plans (interest is reinvested automatically and total interest is paid out at the end) and as plans which offer investors the choice to either reinvest or withdraw interest at periodic intervals.

How to invest in ELSS (Equity Linked Savings Schemes)

• To invest in ELSS, you need to comply with Know Your Customer (KYC) norms.


• If you’ve already invested in Mutual Funds or equities, your KYC details are already stored by registration agencies and you don’t need to register again.


• If you are a new investor, you can become KYC compliant by registering online on KYC Registration Agency (KRA) sites like CAMS and Karvy. You can also register online on the websites of Mutual Fund Houses if you’re buying Mutual Funds from them.


• You need to provide your Aadhaar number, phone number linked to your Aadhaar account, an identity proof, an address proof, PAN number, email address and bank account details. You will also have to upload scanned copies of your photograph, identity proof, address proof, aadhaar card etc.


• You can invest as soon as you complete the eKYC process. A maximum of ₹ 50,000 per Mutual Fund can be invested after eKYC is completed without In-Person Verification (IPV).


• Nowadays, In-Person Verification (IPV) doesn’t need you to be physically present at a stipulated place, as the same can be done through a live video call. You might be asked questions pertaining to KYC details to confirm your identity.


• You can also do KYC registration offline through a SEBI registered investment advisor, at banks, Mutual Fund agency offices etc but this takes a few days before your details are validated.