ELSS Mutual Funds

Equity-Linked Savings Schemes (ELSS) are mutual funds that invest mainly in equities, offering tax benefits under Section 80C. They come with a lock-in period of 3 years and are suited for risk-taking individuals seeking tax-saving avenues and willing to invest in equities.

Best ELSS Mutual Funds Sorted by Last 3 Year Returns

About ELSS Mutual Funds

ELSS or Equity-Linked Savings Schemes are a type of mutual fund that primarily invests in equities or equity-related instruments. As per SEBI regulations, a minimum of 80% of the fund’s assets must be allocated to equity investments. These funds come with a mandatory lock-in period of 3 years, making them one of the shortest lock-in tax-saving options under Section 80C of the Income Tax Act, 1961.

While ELSS funds aim to generate wealth over the long term, they also offer tax benefits, making them a preferred choice for many investors. They function much like any other equity mutual fund, with the fund manager determining the investment allocation across sectors and companies. Investors can choose between a growth option (where earnings are reinvested) or a dividend option (where earnings are paid out).

How Do ELSS Funds Work?

ELSS funds invest your money into equity shares of various companies across sectors. Being open-ended funds, they accept investments throughout the year. Fund managers actively manage the portfolio to maximize returns, selecting stocks based on performance potential and market conditions. Although they carry market risks like other equity funds, the mandatory lock-in period of 3 years encourages a longer investment horizon, which may help smooth out market volatility.

Features of ELSS Mutual Funds

• Tax Savings: Eligible for tax deductions up to ₹1.5 lakh under Section 80C of the Income Tax Act.
• Short Lock-in Period: Just 3 years, which is the lowest among other tax-saving instruments like PPF or NSC.
• Growth Potential: Since they invest in equities, they offer higher return potential compared to traditional tax-saving instruments.
• Flexible Investment: You can invest via lump sum or SIP (Systematic Investment Plan).
• Diversification: Fund managers invest across a mix of sectors and companies, reducing risk.

ELSS mutual funds are a great choice for investors who are looking to save on taxes while also aiming for long-term capital growth. However, as with any equity investment, it is important to consider risk appetite and investment horizon before investing.