ELSS
An Equity Linked Saving Scheme (ELSS) is a diversified equity mutual fund that qualifies for Section 80C deduction up to ₹1.5 lakh per year and has a mandatory 3-year lock-in — the shortest among 80C instruments.
Understanding ELSS
ELSS combines the dual benefit of equity exposure with tax saving. The 3-year lock-in is per SIP installment — every individual contribution must complete 3 years before it can be redeemed. So an investor doing monthly SIPs effectively builds a rolling lock-in.
Most ELSS funds are large-cap or multi-cap oriented; some are mid-cap heavy. Direct plans of ELSS funds (bought via AMC website or RIA) have lower expense ratios than regular plans (bought via distributors) — typically 0.7–1% lower TER, which compounds into ₹1–2 lakh extra over 10–15 years on a ₹1.5L/year contribution.
Why it matters
For old-regime taxpayers in the 20% or 30% slab who can stomach equity volatility, ELSS is usually the highest-return Section 80C option. The 3-year lock-in is short by Indian tax-saving standards, and equity historically delivers 11–13% CAGR over 10+ year horizons — far above PPF (7.1%) or 80C-eligible FDs (~6.8%).
Example
You invest ₹1.5 lakh in an ELSS fund in April 2024. The amount is locked until April 2027. If the fund returns 12% CAGR, your ₹1.5 lakh grows to ₹2.1 lakh in 3 years — and your tax saving is ₹46,800 (at 30% slab + cess) in year 1. Over 15 years of similar SIPs at 12% CAGR, you build a ₹70 lakh+ corpus.
You invest ₹1.5 lakh in an ELSS fund in April 2024. The amount is locked until April 2027. If the fund returns 12% CAGR, your ₹1.5 lakh grows to ₹2.1 lakh in 3 years — and your tax saving is ₹46,800 (at 30% slab + cess) in year 1. Over 15 years of similar SIPs at 12% CAGR, you build a ₹70 lakh+ corpus.