When it comes to tax saving, many people use options like PPF, tax saving FD, insurance, and what not.

At the same time, everybody wants higher returns from their tax-saving investments. They also want the lowest lock-in period for their investment.

Yet so many people refuse to look for better options.

They do not ask the question – what else?

ELSS mutual funds have historically given the highest returns. And they even have the lowest lock-in period amongst all other tax saving options under section 80C.

15 things you should know about ELSS mutual funds:

1. What is ELSS?

ELSS is a dedicated mutual fund scheme that allows investors to save tax. It also provides an opportunity for long term capital appreciation.

2. What are the key features of ELSS?

Key features of a ELSS Fund:

  • Surrogate route to direct stock markets
  • Tax saving instrument
  • Three year lock-in period
  • Can be held even after the completion of three years
  • Offers dividend as well as growth options.
  • Lower minimum investment option.
  • One can invest in small amounts through SIP
  • Potential to deliver higher returns on investment.

3. How ELSS acts as a tax saving instrument?

Under section 80C, investments up to ₹ 1,50,000 per annum are eligible for deduction from your taxable income.

If you invest ₹ 1.5 lakh in the financial year 2018-2019, you will get tax benefits in the financial year 2018-2019.

As per this section, one can avail tax exemptions up to ₹ 1,50,000 by investing in ELSS funds.

4. What is the lock-in period for ELSS?

The lock-in period of ELSS mutual funds which are allowed to be claimed as a deduction under Section 80C is 3 years. In other words, these mutual funds cannot be sold before 3 years.

5. What is the amount range for investment in ELSS?

There is no maximum limit for the investment. But to claim tax deductions under 80c only a maximum of ₹ 1.5 lakhs can be invested in it.

6. How are ELSS mutual funds when compared to other tax saving options under section 80c?

These are several tax saving options available to get tax benefit under Section 80c. Here is the comparison between popular tax saving instruments:


Risk Profile Interest Guaranteed Returns Lock-in Period

ELSS funds

Equity-related risk

12-15 % expected No

3 years



8.10 % Yes

15 years



8-10 % expected No

Till retirement



8.10 % Yes

5 years



7-9 % expected Yes

5 years


Equity-related risk

8-10 % expected No

5 years

Sukanya Samriddhi


8.60 % Yes

21 years

SCSS Risk-free 8.60 % Yes

5 years

7. What are the different ways to invest in ELSS?

ELSS gives 2 options for investments. First through a lump sum or second through Systematic Investing Plan (SIP).

A lump sum is a single large investment done by investor in one go.

An SIP is an option of investing a fixed sum in a mutual fund scheme on a regular basis i.e. predefined regular interval. It is similar to regular saving schemes like a recurring deposit.

8. How to choose the right ELSS fund?

To select the right ELSS which matches your investment goals you have look into following aspects of ELSS:

Make sure the mutual fund is an ELSS fund

Other mutual fund schemes do not provide benefits under section 80c of Income Tax act.

Look at the past performance

Past performance is no guarantee of future performance. Most people start with this step but they stop here too. Looking at returns is only the start of evaluating a fund.

Age of ELSS Fund

It is best for new investors to invest in funds that are more than 5 years old as these funds have a reputation and track record to look up to.

Expense ratio

An expense ratio that is too high is usually not a good sign.

Asset Management Company (AMC)

This is the company managing the mutual fund. Mutual funds are almost always named after the AMC that manages them. Better to look for fund performance rather selecting it based on AMC reputation.

Asset Under Management (AUM)

This refers to the amount of money being managed by an individual mutual fund. Different types of ELSS Fund have a different ideal size for AUM.

A simpler method: Rating of ELSS Fund

If all of the above methods seem very tedious and intimidating to you, there is a simpler way to choose a mutual fund. Use the rating of a ELSS fund to know which fund is the best.

9. Tax on Capital Gain from ELSS Funds

ELSS funds are equity mutual funds. Capital gain tax on ELSS funds are same as in equity mutual funds.

Investors will have to pay 10 % tax on profit gains exceeding ₹ 1 lakh made from the sale of stocks or equity oriented mutual fund schemes held for over one year.

10. Should you redeem after the Lock in Period of ELSS Ends

ELSS also provides an opportunity for long term capital appreciation. So, if ELSS is performing well and is at par to your investment goals then don’t redeem it.

So, it is not necessary to redeem after the three-year lock-in period ends.

11. Should I invest in growth or Dividend ELSS Fund?

If you choose the growth option, it ensures compounding of your capital. The final amount can be redeemed once at the end of the lock-in period.

But, the dividend option gives you some amount for various periods of time. It offers some liquidity even during the lock-in period. This dividend paid out can be further invested in other mutual funds depending on the investor’s portfolio or re-invested back into ELSS Fund.

13. How risky are ELSS funds? 

Many new investors often get scared when they learn that ELSS invests mostly in stocks and carry a higher risk. However, you can overcome this if you are prepared to stay invested for a long period.

Countless studies prove that one can beat volatility and make superior returns from stocks by staying invested for a long period. You should remind yourself that equity has the potential to offer superior returns than other asset classes over a long period.


To sum up all these points, the important factors that makes ELSS a better option are, shortest lock-in period and higher returns. This makes ELSS stand apart in today’s scenario. The growth of ELSS is way above PPF and FD from the above statistics.

Happy investing!

Disclaimer: the views expressed here are of the author and do not reflect those of Groww.