Mutual Funds

ELSS: Equity Link Saving Scheme


ELSS that refers for an Equity Linked Savings Scheme. ELSS is popularly known as a tax saving mutual fund that has lock in period of three years.

Lock in Period?

The lock in period is an amount of time that the investment will be held or locked with the mutual funds company. In this period, the investment made in this scheme of mutual funds, the units are not free of transferring from one person to another person and they cannot be redeemed or withdrawn before the completion of lock in period. Equity Linked Saving Scheme is the only mutual fund that has a lock in period of 3 years. In India, no other mutual fund has this lock in period.

In recent times, there are multiple savings schemes that assist you to save from the net of tax and raise the wealth. For example, Fixed Deposits (FD), National Saving Certificates (NSC) etc .The returns or the income from these savings schemes are taxed. If you want to save your income from being deducted as tax, you can invest in these mutual funds.

ELSS’s returns can be high when the investment is made with the best performance delivering mutual funds company like Aditya Birla, ICICI mutual funds etc. The returns are partially taxable. It means that the returns are not taxable until 31st March 2017. After 31st March, returns will be taxable.

Tax on ELSS returns:

The ELSS returns are taxable after 31st March and also at a concessional rate of 10% .It is also charged only when the gains or returns are more than Rs.1,00,000.Using this, one can save up to Rs.1.5 lakhs per annum under the section 80C  of Income Tax Act 1961.

Section 80C of ITA, 1961:

There are number of deductions a tax payer can claim from his annual income that comes under taxable income. As per the rules and regulations of Sec 80C, the person can have a deduction of Rs.1.5 lakhs for one Financial Year. A deduction of Rs.1.5 lakhs can be claimed from the taxable income and that can be saved by investing it in ELSS. This deduction is allowed for an individual and for the Hindu Undivided Family (HUF).The investment is made in LIC, Med claim or expenses over them etc can be claimed for Income Tax is paid in excess by including these investments in taxable income.



Usually mutual funds charge a high fee on the initial investment and also charge a fee on the exit or redeeming of the investment within a financial year. In case of ELSS such charges and fees do not apply as they have a lock in period of 3 years. The investors can extend their investment period not limiting to the lock in period of 3 years and the higher investment period only result in bigger returns. It does not require any lump sum amount for investing in online boutique as it can be begun with an initial investment of Rs.500. So, there is no need of being worried about the amount of investment and one can also check the profitability of this by investing a small amount also.

In the bottom line, ELSS is easy to invest and can be invested with the selected mutual funds company and it can also be tracked and monitored. This does not require any paper work and it is flexible of signing up and completing the KYC. The investing option can be either in lump sum or in installments and it also involves some factor of risk as the outcome of returns can be either positive or negative and it is also the best tax saving option (as per the provisions of sec 80C of Income Tax Act, 1961) when compared with FD’s, NSC’s etc.


CA Rachit Jain

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