Not FDs—ELSS is the fastest way to save tax and become a crorepati! Find out how..
ELSS Mutual Funds: While there are several options available for tax saving under Section 80C of the Income Tax Act, ELSS (Equity Linked Savings Scheme) has emerged as a favorite among salaried individuals and young investors.
Essentially, this is a tax-saving mutual fund that not only offers a tax exemption of up to ₹1.5 lakh annually but also helps build a substantial corpus over the long term by investing your money in the stock market. Among all tax-saving instruments—such as PPF or FD—it has the shortest lock-in period: just three years.
What is an ELSS Mutual Fund?
ELSS is an open-ended equity mutual fund. This means that at least 80% of your invested capital is deployed into the shares (equity market) of select, robust companies in the country.
Benefits of ELSS Mutual Funds
Exemption under Section 80C: Investors opting for the 'Old Tax Regime' can save tax by claiming a deduction for investments of up to ₹1.5 lakh in these schemes. Return Potential: Since the funds are invested in the stock market, there is a strong possibility of earning estimated returns of 12% to 15% over the long term (5 to 7 years). Smart 3-Year Lock-in: Your investment remains locked for three years from the date of deposit. This three-year tenure also fosters a disciplined investment habit among investors.
Which is better: ELSS or FD?
If you are undecided between a 5-year tax-saving bank FD and ELSS, the comparison below can help you make the right choice.
Feature | ELSS Mutual Fund | Tax-Saving FD
Lock-in Period | Just 3 years | 5 years
Estimated Returns | 12% to 15% (market-linked) | 6% to 7.5% (fixed)
Risk Level | Moderate to High (market-linked) | Zero (safe, government-backed)
Impact of Inflation | Fully capable of beating inflation | Real returns are quite low
Investment Mode | SIP (₹500/month) or Lumpsum | Lumpsum only
4 Major Benefits of Investing in ELSS
Fastest Liquidity: PPF has a 15-year lock-in and tax-saving FDs have a 5-year lock-in, whereas with ELSS, you can withdraw your money after just 3 years.
Potential to Beat Inflation: Returns on traditional fixed deposits often lag behind the inflation rate, while ELSS grows your funds rapidly through equity-driven growth.
Start SIP with a Small Amount: You do not need to invest a large lump sum at the end of the year to save tax. You can start an SIP with as little as ₹500 from your monthly salary.
Professional Management: Your funds are managed by highly experienced market fund managers who invest based on market analysis.
If you withdraw money after the 3-year lock-in period ends, profits up to ₹1.25 lakh in a financial year are completely tax-free. Profits exceeding this amount attract Long-Term Capital Gains (LTCG) tax at a rate of 12.5%, as per regulations.
Instead of investing a large lump sum at the end of the financial year (i.e., in March), invest via SIP right from the beginning of the year. This offers the benefit of 'Rupee Cost Averaging' and minimizes the impact of market volatility on your portfolio.
How to Start Investing in ELSS Funds
If you wish to start investing in this tax-saving fund, the process of investing in a 'Direct Plan' online is extremely simple. You can choose any of the platforms listed below based on your convenience.
Mutual Fund Apps: You can invest directly through popular fintech platforms like Groww, Zerodha Coin, ETMoney, or INDmoney. AMC Official Websites: To invest in schemes from fund houses like SBI, HDFC, ICICI Prudential, or Nippon India, you can visit their websites directly and select the 'Direct Plan'. Registered Distributors & Net Banking: You can also use aggregator websites like CAMS and KFintech or your bank's net banking portal.
Here is the online investment process:
First, complete the e-KYC verification; next, select the fund; then, choose between SIP or Lump Sum and make the online payment.
Complete the e-KYC process: KYC is mandatory for investing in mutual funds. This requires a PAN card, proof of identity, and digital verification, all of which can be completed online.
Choose the right fund: Select a suitable ELSS fund by comparing performance over the last 3–5 years, the fund manager's track record, and the expense ratio.
SIP: Set up an auto-debit for a fixed monthly amount—such as ₹500, ₹1,000, or any amount of your choice. The specified amount will be deducted from your account and invested in the SIP every month.
Lump Sum: You can also invest a large amount in a single transaction. Keep in mind that the tax exemption under Section 80C is capped at ₹1.5 lakh.
Make the payment: Complete the transaction using UPI, net banking, or a debit card.
Disclaimer: This content has been sourced and edited from NDTV India. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.
