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What is difference between ELSS funds and other mutual funds?

Are ELSS funds different from other equity funds? Why is tax benefit available only on ELSS funds? How can I differentiate between the two funds?

Devanshu Gupta

Mutual fund is a pool of investments of individual investors, invested in capital markets as per the objectives and scope of the scheme. ELSS or equity linked savings scheme is a sub-category of equity mutual funds.

ELSS is different from other equity mutual funds in terms of its taxation benefits and lock-in period.

1.  Taxation benefits

Investments in ELSS funds are covered under deductions of section 80c of the income tax act in India. The maximum amount up to which deduction can be claimed is ₹1.5 lacs per annum.

2.  Lock-in Period

Investments in ELSS funds have a lock-in period of 3 years from the date of allotment of the respective units. This lock-in period is a part of the government’s plan to help investors gain in the long term.

These 2 unique features differentiate ELSS from other equity and debt schemes.

Apart from these features ELSS schemes invest in diversified equity stocks. This type of scheme is suitable for investors who are not risk averse and looking to invest for long term and meet their future goals through capital appreciation and also want to protect their investments from moderate inflation. It has been observed in the past that returns in ELSS funds range from 11-14% on an annual basis.

To read more about about equity linked savings schemes please click here

Some of the top performing ELSS schemes are:

Pijush Kanti Biswas

ELSS is nothing but a type of mutual fund and comes under broader category of equity mutual funds.

ELSS is a dedicated mutual fund scheme that allows investors to save tax. It also provides an opportunity for long term capital appreciation. An ELSS fund manager invests in a diversified portfolio, predominantly consisting of equity and equity related instruments that carry high-risk and have the potential to deliver high-returns.

ELSS when compared to other mutual funds options:

  • Only ELSS Mutual Funds offer tax benefits under section 80C of the Income Tax Act. As per this section, one can avail tax exemptions up to INR 1,50,000 by investing in ELSS funds.
  • An ELSS fund manager invests in a diversified portfolio, predominantly consisting of equity and equity related instruments that carry high-risk and have the potential to deliver high-returns as compared to large cap funds and debt funds.
  • The lock-in period of ELSS 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.
  • ELSS returns are tax free after lock-in period of 3 years. Whereas equity funds returns are tax free is sold after one year when they are accounted under long term capital gains tax.

Depending on your investment goals choose the right mutual fund available in market.

Happy Investing!


Equity Linked Savings Scheme (ELSS) is an equity oriented mutual fund which gives tax benefits which are not available in case of mutual funds.

2 major differences between an ELSS and other mutual funds are:

·     Lock- in –In ELSS there is a minimum lock-in period of 3 years in any/all ELSS schemes. Under ELSS schemes, pre-mature withdrawal is not allowed before the completion of lock-in period. In case of Mutual Funds there is no lock-in period, investments can be withdrawn at any point of time after investment.

·     Tax benefits- Although there is no upper ceiling for investing in an ELSS scheme, however tax benefits for ELSS are available to the tune of INR 150000 under Section 80C of the Income Tax Act. There is no such tax saving or benefit available for other mutual fund schemes. 

Similarities between ELSS and other mutual funds are:

·     Any dividend received by the investor is tax-free.

·     Long Term Capital Gains (LTCG) arising upon sale of mutual funds after a period of one year is also exempt. As per Indian Income Tax Act, investment has to be made for more than 1 year in order to be eligible for LTCG.

An investor looking to invest in an equity oriented fund and getting tax benefits prefer to invest in an ELSS. These days some good ELSS are giving such great returns that people invest in not just for the sake of getting tax benefits but also to earn attractive returns.

Few good ELSS are:

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