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How do you differentiate Equity funds and ELSS?

When it comes to mutual funds, the choices are many. There are different types of mutual fund schemes based on their investment portfolio, risk profile, return potential, and investment objective. Equity mutual funds are quite popular among investors who have a healthy risk appetite. They allow you to invest and get attractive returns through investment in equity-oriented securities. Moreover, if you choose ELSS funds, you can also get tax benefits. 

Equity Linked Saving Schemes, also called ELSS in short, are equity-oriented mutual fund schemes which have an added advantage of tax benefit. ELSS funds are, in fact, a type of equity mutual funds but many investors confuse them to be synonyms of each other. So, let’s understand and state the similarities and differences between these types of mutual fund schemes –

What are equity mutual funds?

Equity mutual fund is a broad category of mutual fund schemes under which different types of schemes fall. Equity mutual fund is a generic name given to those mutual fund schemes whose portfolio invests at least 65% in equity stocks and securities. 

What are ELSS schemes?

ELSS schemes are a type of equity mutual fund which allow you to avail tax benefit on the amount that you invest into the scheme. This ELSS tax benefits is not available under any other mutual fund scheme making ELSS schemes popular.

Similarities between ELSS and equity mutual funds

  • Under both these funds, the portfolio consists of at least 65% of equity investment
  • Both these types of mutual fund schemes have a high-risk profile and are suitable for investors who have tolerance of taking investment risks

Differences between ELSS and equity mutual funds

Points of differenceEquity mutual fundsELSS funds
Scope Equity mutual fund is a category of mutual fund schemes under which you can find different types of schemes like large-cap fund, mid-cap fund, small-cap fund, etc.ELSS funds are a type of equity mutual fund. They are, therefore, a subset of the equity mutual fund family
Investment tenureThere is no specific investment tenure for equity mutual funds. You can invest for as long as you want and redeem the funds as per your needELSS funds have a lock-in period of 3 years. Investments into the fund are locked in for 3 years and only after the lock-in period is over are you allowed to redeem your investment
Tax benefit on investmentNo tax benefit is available on the money that you invest in an equity mutual fund schemeOne of the ELSS tax benefits is the benefit available on investment. The money that is invested in the ELSS scheme qualifies for deduction under Section 80C. You can claim a deduction of up to INR 1.5 lakhs by investing in the ELSS fund online
Tax benefit on redemptionIf you redeem the equity mutual fund within 12 months of investment, the returns earned are treated as a short term capital gain. This gain is taxed @15%. However, if you redeem the fund after 12 months, the returns earned are called long term capital gains. Such gains are tax-free up to INR 1 lakh. If the returns exceed INR 1 lakh, 10% tax is charged on the excessAnother ELSS tax benefit is the benefit of redemption of the fund. Since ELSS schemes have a lock-in period of 3 years, there is no short term capital gain. Thus, on redemption, the returns earned are long term capital gains which are tax-free up to a limit of INR 1 lakh. If the return is more than a lakh, the excess is taxed @10%

Thus, ELSS funds are nothing different but equity mutual funds with a lock-in period and added tax benefits. So, if you are looking to save taxes and earn attractive returns, invest in an ELSS fund online and build your portfolio. Compare the different ELSS fund online and then choose a scheme which has given consistent returns over a long term period. This would ensure that you get maximum returns from your investments. 


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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