When tax season arrives, most people scramble to find last-minute ways to reduce their liability. But what if you could save tax and grow your wealth—all with one smart move?
That’s exactly what ELSS (Equity Linked Savings Scheme) offers. In this beginner-friendly guide, we’ll break down what ELSS tax saving funds are, how they work, and why they’re one of the best options for young earners and first-time investors in India.
What Are ELSS Tax Saving Funds?
ELSS (Equity Linked Savings Scheme) is a type of mutual fund that primarily invests in equities (stocks) and qualifies for tax deduction under Section 80C of the Income Tax Act.
Key features:
- ✅ Up to ₹1.5 lakh deduction under Section 80C
- ✅ Shortest lock-in period among 80C options – just 3 years
- ✅ Potential for high returns as it invests in equities
In essence, ELSS combines tax benefits with wealth creation, making it a two-in-one investment.
How Does ELSS Work?
Here’s what happens when you invest in an ELSS fund:
- You invest a lump sum or via SIP (Systematic Investment Plan).
- The fund invests primarily in equity markets.
- Your investment is locked in for 3 years (each SIP installment has a separate 3-year lock-in).
- After 3 years, you can withdraw or stay invested.
Why ELSS Is Great for Beginners
1. Save Taxes While Building Wealth
You get tax deductions up to ₹1.5 lakh/year, potentially saving up to ₹46,800 annually in taxes (if in the 30% bracket).
2. Shortest Lock-In Among 80C Options
While PPF (15 years) and NSC (5 years) tie up your money, ELSS only requires a 3-year commitment.
3. High Return Potential
Since ELSS funds invest in the stock market, they offer better long-term returns than traditional tax-saving instruments.
4. Easy to Start via SIP
You can start with as little as ₹500/month, making it beginner- and budget-friendly.
ELSS vs Other 80C Options
| Feature | ELSS | PPF | Tax-Saving FD |
|---|---|---|---|
| Lock-in Period | 3 years | 15 years | 5 years |
| Returns (2025 est.) | 10–14% (market-linked) | ~7.1% (fixed) | ~6.5% (fixed) |
| Tax on Returns | LTCG > ₹1L taxed at 10% | Tax-free | Fully taxable |
| Risk Level | Moderate to High | Low | Low |
Top ELSS Funds to Consider in 2025
⚠️ These are for educational purposes. Please consult a SEBI-registered advisor before investing.
- Mirae Asset Tax Saver Fund
- Canara Robeco Equity Tax Saver
- Quant ELSS Tax Saver Fund
- Axis Long Term Equity Fund
- Kotak Tax Saver Scheme
Look for funds with strong 5-year returns, low expense ratios, and consistent performance across market cycles.
How to Start Investing in ELSS
- Choose a fund via platforms like Zerodha Coin, Groww, or Kuvera.
- Decide between SIP (ideal for salaried investors) or lump sum (good for last-minute tax saving).
- Link your bank account and complete KYC.
- Start with a manageable amount and increase over time.
Things to Keep in Mind
- 🔒 Lock-in Period: You can’t withdraw before 3 years.
- 📉 Market Risk: Returns are not guaranteed—stay for 5+ years for best results.
- 📊 Fund Selection Matters: Choose diversified, well-rated funds—not just the “top of the list.”
Final Thoughts
ELSS isn’t just about tax saving. It’s about building sustainable wealth while doing so.
If you’re new to investing and want to reduce your tax burden, starting a SIP in a quality ELSS fund could be your smartest financial decision this year. And the best part? It requires minimal effort, offers great flexibility after 3 years, and works quietly in the background while you focus on living your life.
