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Who Should Invest in ELSS Mutual Funds and explain Tax Implications on ELSS?

Equity Linked Saving Schemes, ELSS, are quite popular among investors. These schemes allow you to invest in equity oriented securities for good returns. The lock-in period of three years gives you the benefit of disciplined savings and the tax benefits are the icing on the cake. However, when investing in ELSS mutual funds, you should understand the fund completely. So, let’s understand what ELSS funds are, who should invest in them and their tax implications – 

What is an ELSS fund?

An ELSS fund is an equity oriented mutual fund scheme. The fund invests at least 65% of its portfolio in equity oriented stocks for maximum returns. There is a lock-in period of 3 years on ELSS investments during which you cannot withdraw or redeem the fund. ELSS funds are popular because they allow tax saving benefits on the investments.

Who should invest in ELSS mutual funds?

ELSS mutual funds might not be the best investment avenue for every mutual fund investor. You should invest in ELSS schemes if you are comfortable with the following facts –

  • You are able to take equity linked risks which the fund entails. Since ELSS is an equity oriented fund, it has investment risks in market volatility. If you have a health risk appetite, you can invest in top ELSS funds in India
  • If you do not need funds within the next three years, you can invest in ELSS schemes. Since the scheme has a lock-in period of 3 years, your investment would be locked in for the specified duration restricting your access to your investment. So, if you have no financial need in the near future you can invest in ELSS funds.
  • If you want to maximize the tax saving benefit of Section 80C, you can invest in ELSS schemes. Your investments would be allowed as a deduction from your total taxable income thereby lowering your tax liability.

So, if you want to save tax, don’t mind the investment risk and have no pressing financial need in the next three years, you can invest in ELSS schemes. 

Tax implications of ELSS funds

ELSS mutual funds are popular because of their tax saving nature. Let’s have a look into the tax benefits which the funds provide –

  • Tax benefit on investments

Investments into the ELSS scheme qualify as a tax-free deduction under the provisions of Section 80C of the Income Tax Act, 1961. You can claim a deduction of up to INR 1.5 lakhs from your taxable income under Section 80C if you invest in ELSS funds.

  • Tax benefit on returns

Since ELSS mutual funds are equity oriented schemes, they attract equity taxation. Returns earned from the ELSS schemes are not subject to tax if they are up to INR 1 lakh. However, if the returns exceed INR 1 lakh, the excess is taxed at 10%. So, if you earn returns up to INR 1 lakh, the entire earning would be a tax-free income in your hands. In case your returns are INR 1.5 lakhs, tax @10% would be payable on the excess return of INR 50,000 while INR 1 lakh would be completely tax-free.

Thus, ELSS mutual funds provide you with good tax benefits on both investments as well as on returns.

Top ELSS Funds in India

Here are some of the top ELSS funds in India to choose from –

Name of the fund3-year return as on 28th April 2020
Axis Long Term Equity Fund5.5%
Canara Robeco Equity Tax Saver Fund4.61%
Mirae Asset Tax Saver Fund3.91%
Invesco India Tax Plan3%
Aditya Birla Sun Life Tax Relief 96 Fund1.48%


Understand the concept of ELSS mutual funds, their suitability and tax implication before you invest in them. Choose the best ELSS funds available in the market based on their returns and consistency so that you can maximize your wealth.


Published by Nidhi Mehra

I am blogger with 5 years of experience in writing articles and topics related to finance and funds

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