equity linked saving scheme elss

Equity Linked Saving Scheme (ELSS)

Equity Linked Saving Scheme (ELSS)

An Equity Linked Savings Scheme (ELSS) is a diversified equity mutual fund that gives you a dual benefit of tax saving with the growth potential of equities. However, unlike other tax-saving investments, ELSS has a lock-in period of just 3 years. Which also means each installment will have a different maturity date. Investing through an SIP also gives you the benefit of rupee-cost averaging and compounding, that helps you ride over market volatility over the long term.

Benefits of ELSS:

  1. Lock-in period is very low when compared to others
  2. Interest rates are high.
  3. One can opt to invest on a monthly basis.
  4. Higher returns when compared to other investment options.


  1. Earlier there was no tax on capital gains made from ELSS investments at the time of redemption however from Assessment Year 2019-20 Long Term Capital Gain from ELSS is taxable at a flat rate of 10%(If total Long Term capital Gain from sale/redemption of shares/ mutual funds exceeds Rs. 1.00 lac).
  2. ELSS qualifies for tax exemption of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act. However when compared to other tax saving options like Mutual Funds, NPS, PF, Term Insurance, etc. these tax savings mutual funds have the shortest lock-in period of 3 years.
  3. Securities Transaction Tax(STT) @ .001% on the total redemption value is deducted by the fund house.
  4. Dividend from ELSS is tax-free.
  5. No TDS is applicable on Dividend received or amount paid at the time of redemption.

Options of ELSS:

  1. Growth option
  2. Dividend option
  3. Dividend Reinvestment option.

Many fund houses give you an option to switch to another option. The option of switching from dividend reinvestment to dividend payout is provided by many fund houses. In case of switching to growth option, fund houses may calculate the lock-in period from the date of change. Switching from one option to another will require some paperwork to be done as per the requirements of the fund houses.

Open-End ELSS:

Under this scheme, the investors can invest at any given time as per their preference. The 3 year lock-in period is however applicable, but once the lock-in period ends, redemptions can be made at any time of the investor’s choice.


Closed-End ELSS:

Close-ended ELSS only takes investment during the NFO (New Funds Offer) period and after that, they are closed for investments. Additionally, the investors can liquidate their investment in the closed-end fund after completion of the 3-year lock-in at only specific periods of time as declared by the fund from time to time.

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