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How is Elss The Best Tax Saving Mutual Fund?

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With ample investment options within mutual funds, ELSS mutual funds have gained major popularity. Who wouldn’t like to make an investment that could bring in good returns and save taxes too? Well, ELSS is a tax-saving mutual fund that serves both purposes. Thus, it has become the most likely investment option for investors! We get that ELSS or Equity Linked Savings Scheme is a tax-saving mutual fund, but how is it the best tax-saving mutual fund? Well, we got you covered, in this blog, we’ll be covering the basics of the ELSS fund and stating the facts about how it is the best tax-saving mutual fund!

What is an ELSS fund?

ELSS mutual fund

ELSS or Equity Linked savings scheme is a fund that invests the majority of the investment amount in equity or equity-related instruments to generate wealth. But they are known majorly for their tax-saving facility. This scheme comes with a lock-in period of 3 years but it has no maximum tenure of investment! The best part of investing in ELSS mutual funds is that as per the Income Tax, you can get tax exemption up to 1,50,000 under section 80C. Being a first-time investor then ELSS is an excellent option because it provides tax saving and wealth creation.

Why you should invest in an ELSS mutual fund?

invest mutual-fund

There are ample reasons why you should invest in an ELSS mutual fund. Let us state the 3 very obvious reasons.

  • Firstly, ELSS funds have the highest potential to offer you high returns. As mentioned ELSS is an equity-oriented instrument and it invests in stocks. If invested for a longer tenure, stocks have the potential to provide higher returns than investment avenues like debt mutual funds.
  • Secondly, by providing the shortest lock-in period, ELSS investment has raised its bar quite high. Unlike other government-backed investments that typically come with longer lock-in periods, ELSS here allows you to access your money in just 3 years. But be sure that if you wish to entail higher returns then investing for a longer period will do wonders for your ELSS investments.
  • Lastly, the ELSS fund is considered to be a great investment option for many investors. It is like a great stepping stone for their investment journey. This is because, with the lock-in period, they can weather the volatility in the stock market/equity. Once the investors see themselves the benefit of ELSS mutual fund for say 4 to 5 years then they will start to invest even more amount in equity schemes.

What are the tax benefits provided by the ELSS mutual fund?

should invest in an ELSS mutual fund

As stated above, the Income-tax Department under section 80C helps investors investing in ELSS by providing a tax exemption of up to 1,50,000 from your annual taxable income. Not only this but when you are planning to redeem your units, you receive LTCG, long-term capital gains. Up to one financial year, these gains are not taxable up to Rs. 1 lakh. Long Term Capital Gains above this limit are generally taxed at 10% exceeding 1 lakh without indexation.

Let us elaborate on the concept of ELSS with a real-life example. Consider a person named Ankita who works as a chartered accountant in a reputed firm and earns a taxable income of? 18 lakh per annum. This puts her into the Tax bracket of 30%. Further, she decides to invest. 1.5 lakh in the ELSS fund. Now, as per Section 80C of the Income Tax Act, she is left with a taxable income of? 16.5 lakh and on the other, she will also be saving the money she decided to invest in the ELSS fund.


Making an investment that provides you with both returns and tax-saving facilities is the best thing an investor can get.