Tax Saving Mutual Funds (ELSS) Advantages & How to Invest?

What is ELSS Tax Saving Mutual Fund? How ELSS Work?, Advantages & How to invest in ELSS?

If you are already an experienced investor of the stock market, then you shall be well-acquainted with various kinds of taxes on returns from various kinds of investment activities.

You know this well, whether it is any kind of investment, like Debentures, Equity, Commercial papers, Treasury bill or anything, you have to pay a certain percentage of tax on their respective returns.

What if, you need not pay these taxes and you receive a tax-free return?Sounds Good haa!

Well! This can be possible and this has been already made possible by the Mutual Funds through its one amazing scheme. This Scheme is commonly known as ELSS which means Equity Linked Saving Scheme.

Our matter of contention for today’s topic is ELSS Tax saving mutual fund. I will impart you theoretical knowledge regarding ELSS mutual fund in-depth.

When it comes to investment, nothing will pay off more than educating yourself. Do the necessary research, study, and analysis before making an important investment decision.

So, without much ado, let’s get started!


What is Equity Linked Saving Scheme (ELSS)?

Tax Saving Mutual fund

ELSS is a scheme under 80C Section of Mutual Funds which is linked with the Equity trade market in order to output a confirmed tax-free return to the investor on his/her invested part.

The confirmed high returns and that too completely free from any kind of tax, adds aroma to this particular scheme, thereby attracting more and more customers to opt for this medium of investment.

Now, you must be thinking that who can benefit from this scheme or who should invest in this scheme?

The answer is right here. As per the ELSS plan, a person who cannot invest more than 1.5 lakhs or who can invest maximum up to 1.5 lakhs, should choose this scheme without giving any second thought in his/her mind.

The ELSS provides tax-free benefits at only those investments which are done below 1.5 lakhs. It means the individuals who wish to invest beyond this figure have to pay their tax according to the tax slab under which they are falling.

How ELSS work?

The ELLS is linked with the Equity that is why it is a diversified Equity Mutual Fund and because of this, the Mutual Fund professions invest the maximum portion of the corpse in the equity market.

In ELSS, there is a lock-in period of 3 years. Once invested your money in the ELSS, you will be able to withdraw all your money right after the completion of maturity period (i.e. 3years).

You cannot withdraw your whole invested money or partial money before completion of 3 years in any case.

You can ask your agent to provide the respective profits on your investment in ELSS to you on a regular basis. But in this case, also, you’ll get only the profits. The principal amount will be dispatched to you after 3 years.

It is your choice to either take out the profits or reinvest your profits for long-term gains.

Who not wants to get a better return and who not wants to get a tax-free return? Everybody does. But due to incomplete knowledge of investment, the investors make some wrong decisions regarding their trade in the stock market.

Whenever the stock market goes down, the investor got afraid for losing his money in the share market and because of this in order to protect his invested money; he /she redeem the money from the mutual fund. No doubt, this practice is really very-very wrong. Why?

Actually, In ELSS, as already told you, that it has a lock-in period of 3 years which is long duration. If at a point in time, the stock market goes down then that doesn’t mean that it will not go up. The market gets fluctuated because of the demand and supply factors which are extremely dynamic in nature.

It generally happens that you could not gain expected profits in the first year, but it is really true in the long term, after 3 years, you gain a good earning amount.

Since 3 years is a long duration, so it gives the professionals of Mutual Fund a relax. They know that your fund is not going to leave till 3 years and therefore they took great deliberation in selecting the best destination of trade and maximize your returns till the maturity period of the ELSS.

ELSS Advantages

  1. When you invest in PPFs, NSC, Tax Saving FDs or Senior Citizen Fund, you have to wait very long to arrive at their maturity period. Like PPF has the maturity period of 15 years, NSC, Sr. Citizen Fund, & Tax Saving FDs have 5 years. But fortunately, the ELSS has a lock-in period of only 3 years.
  2. Returns on investment, either on NSC, or Sr. Citizen Fund or even the Tax Saving FDs is taxable in nature. You have to pay taxes on what you get on the investment. This is not so with the ELSS. The dividend generated out of ELSS is completely free from taxes.
  3. The new investors who had never made any kind of investment in the stock market can find a good option for investing through ELSS. Because this scheme not only provides them safety from bearing any loss on returns or Taxes but also it helps them to take an experience of investing in Equity stock market which possibly can provide them a huge return.
  4. The investor can gain 15-20% gain via ELSS, while the FDs or PPF provides only 8-10% returns.
  5. The investor gains a long-term capital gain as his money is locked for 3 years and in those 3 years, his money got multiplied as a result of continuous trading in the stock market.
  6. The investor has not to bear any tax. Not on the returns and even on the principal amount.


  1. Since ELSS compels you to wait for 3 years, you cannot do partial withdrawals, nor do you have the permission to take any loan. Even in emergency issues, you not have the permission.
  2. As ELSS invests in the stock market, so it is risky in nature. An ideal profit on investment is not at all guaranteed here as this is an equity-based mutual fund which makes it subject to market returns; hence it is not possible to confirm whether or not you will get any returns.

What are the Tax benefits of ELSS funds?

  1. Investments of up to Rs1.5 lakh in ELSS funds earn a tax rebate under Section 80C every year and this would happen after completing 3 years of the lock-in period.
  2. You can save tax on your Salary. Really! How?

Suppose you have a salary 8.5 lacs. You want to invest 1.5lacs out of it in ELSS. Now you will be left with 7 lacs.

This left amount of 7lacs will be used as a basis for calculating your tax. The tax will be applicable on 7lacs and not on 8.5lacs.

What you could have to pay on 8.5lacs is much higher than what you will pay on 7lacs.

Summarily, you have protected your 1.5lacs from tax.

  1. Your dividends on investment are totally free, which is not provided in another kind of investments.

What is the ELSS investment tenure?

The ELSS demands to lock your invested money for 3 years. You cannot redeem your amount before this duration.

But once reaching the maturity period, you can stay invested in them. The choice is yours whether you want to make further contributions or not. If you want to earn more, then you can continue to invest for the next 3 years.

But if you have no wish to either gaining more or you have fear of expending money if withdrawn once, then you can let your money stay with the ELSS Mutual Fund as it is without any contributions.

In the case of Systematic Investment Plan, you can stop to contribute anytime, but the condition applies that you cannot redeem your amount before 3 years.

What are my Options while Investing in ELSS?

There are two kinds of returns grabbing process. One is growth and the other is the SIP.

If you choose the growth option then your returns on investment will be added back to your principal amount and again it will be used for reinvestment purposes. In this way, your funds tend to grow regularly.

If you choose the SIP option then you will get the dividend regularly, but your principal will be returned to you after 3 years. If you remember the basic of SIP, then you may know that you can deposit money in installment monthly wise or week-wise here. The pattern in which you make deposits, the same pattern will be followed for returning out the returns.

Like if you have deposited your first installment on Feb2017, then you will get the whole amount in Feb 2020. Similarly, if you have deposited your second installment in

April 2017, then you will get the whole amount in April 2020. So, redemptions are done on a first¬-in¬-first¬-out basis.

In both the cases, you need not to pay any tax on Dividends or returns.

How to invest in ELSS?

To invest in ELSS, you have 2 options. You can do so via online and offline too.

Online process

You have to visit the Mutual Fund house official website and after finding the form for ELSS scheme, you have to fill that form.

It should be determined by you, that whether you are following a direct approach or the regular approach.

Direct means you are not taking the help from any Professional and thus you will be exempted from their fees. You will not have to pay any additional charges and you are not subject to any terms and conditions.

But if you chose the Regular approach you will face a fee structure.

So, please note that the form which you are filling is containing which heading- a direct form or a Regular form.

Offline approach-

Carry your Pan Card and KYC and Visit the Mutual Fund house of your choice and ask for the form of ELSS there.

Again, be aware of the category of the form you wish to go through the process.


If you are very new in the Stock market or any investment, then you should take help from the professionals because they can guide you better and can deliver you the best medium of investments with better returns.

If you are well-versed with the investment market, then you can select the direct approach and can apply via the Internet or Online medium.

So, readers, this is all about ELSS mutual funds. Investing is a sensitive decision; do not make it under influence/allure of fancy high returns. Take informed decision to avoid uncertainty or risky circumstance.

Final Words

Greeting investors

Please write to us, if you had a great time reading about “ELSS mutual funds” in detail. All the above content is well researched and well drafted for your convenience.

I am very delighted to share my knowledge about ELSS tax saving mutual funds details with you.

“You are an investor, not speculator. Shape your decision on real facts and analysis rather than a risky and uncertain forecast.”

Your suggestion and doubts are welcome on this post. Feel free to connect with us through the comment section below.

Have a great day & happy investing J