Equity Linked Savings Scheme (ELSS)
ELSS is defined as a type of open-ended equity mutual fund in India that qualifies for a tax deduction under Section 80C of the Income Tax Act, 1961. Investments of up to ₹1,50,000 per financial year in ELSS funds are eligible for deduction from taxable income under the old tax regime.
Lock-In Period
ELSS funds carry a mandatory lock-in period of three years from the date of each unit allotment. This is the shortest lock-in among all instruments eligible under Section 80C (PPF: 15 years, NSC: 5 years). For SIP investments, each instalment is treated as a separate purchase with its own three-year lock-in.
Portfolio Composition
As per SEBI regulations, ELSS funds must invest a minimum of 80% of their assets in equity and equity-related instruments. The remaining portion may be allocated to debt or money market instruments. Returns are market-linked and not fixed — the value of units fluctuates with equity markets.
Taxation of Returns
- •Dividends from ELSS are added to the investor's income and taxed at the applicable slab rate.
- •Long-term capital gains (LTCG) on redemption are taxed at 10% on gains exceeding ₹1,00,000 in a financial year (without indexation), as per current tax rules.
Comparison With Other 80C Instruments
| Feature | ELSS | PPF | NSC |
|---|---|---|---|
| Lock-in | 3 years | 15 years | 5 years |
| Returns | Market-linked | Fixed (government-set) | Fixed |
| Tax on maturity | LTCG applicable | Exempt | Taxable |
ELSS funds are regulated by SEBI and managed by registered asset management companies. Fund performance varies based on portfolio construction, market conditions, and investment horizon.