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How can ELSS help you achieve your financial goals?

Mutual funds help you to save for your long-term financial goals like child education, buying a home, marriage needs and even for your own post-retirement life. Of the distinct mutual fund schemes, ELSS (equity-linked savings schemes) holds a very special position when it is to save for retirement. ELSS fund scheme comes with tax benefits as per Section 80C for up to Rs 1.50 lakh and comes with the shortest lock-in time period of 3 years. The amount invested in ELSS funds qualifies for a tax deduction and thus lowers your tax liability based on your income tax bracket.

Here are some crucial reasons why ELSS fund can help you attain your financial goals

  • You can save the tax and create wealth simultaneously

Firstly, ELSS funds invest in equity or equity-linked funds. So, basically, they are equity funds, i.e., they invest in distinct companies of various sizes – small, mid, and large, throughout all sectors. As an equity fund, it has the potential to form massive wealth over a long time period. However, the other major benefit you get from ELSS fund investing is the fact you get a tax deduction of up to Rs 1.50 lakh as per Section 80C. No other mutual fund offers you this benefit. So, if you fall in the highest income tax group of 30 per cent, you can save an overall tax of Rs 46,800, which includes a 4 per cent cess in income tax. So, you can get tax benefits for ELSS investing that no other mutual fund may give you.

  • They have the lowest lock-in period than other tax-saving instruments

If you compare ELSS lock-in with other tax-saving investment instruments, then ELSS funds score an additional point. Lock-in periods for a few popular tax saving instruments are – PPF (public provident fund) – 15 years, tax saving fixed deposit – 5 years, unit-linked investment plan (ULIPs) – 5 years, etc. However, as compared to this, the ELSS lock-in period is just 3 years.

Lock-in period for tax savings
Investment products Lock-in period
ULIP 5 years
Tax saving fixed deposit 5 years
Public provident fund (PPF) 15 years
ELSS (equity-linked savings scheme) 3 years


  • You can begin by investing a small amount via an SIP

Like other mutual funds, it is simple to invest in ELSS funds via an SIP. You can begin your ELSS SIP with an amount of as low as Rs 100. Like other mutual funds, when your income rises you can enhance your investment in ELSS via SIP top-up to reach your financial goals faster.

  • Mutual fund taxation assists you to save more

ELSS mutual funds have a minimum lock-in of three years. After three years, LTCG (long-term capital gains) of up to Rs 1 lakh per year from the ELSS fund are tax-exempt. However, the LTCG of over Rs 1 lakh levies a tax of 10 per cent. Now, in terms of taxation policy, in case you compare the ELSS fund with PPF (public provident fund), you may feel that the advantage of ELSS investing is less. However, you must note that PPF has a long-term lock-in, and such investments are not prudent for meeting your mid-term or short-term financial goals.

In case you compare it with a five-year fixed deposit, you would find ELSS investing more advantageous in terms of taxation policy. Your fixed deposit returns are taxed according to your tax slab. If you fall in the highest tax bracket of 30 per cent, then your returns on fixed deposit would be taxed at 30 per cent.  Meanwhile, for ELSS funds or other mutual funds, LTCG of over Rs 1 lakh gets taxed at 10 per cent. This means your returns get taxed at 10 per cent.

Ending note

The incentive to save your tax, the conveniences offered by mutual funds and the potential to generate long-term wealth make ELSS funds a good investment option. However, to make out most out of the market investment, you must ensure to select the ELSS mutual fund scheme based on your risk appetite level, financial goals and the time horizon left in attaining them.

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