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What Every Taxpayer Need To Know About Tax Saving Mutual Funds

What Every Taxpayer Need To Know About Tax Saving Mutual Funds


Many investors enjoy investing in the equity market, which is one of the most volatile and high-returning markets. But they are careful because there is a chance that they may lose money or get a lower return in the stock market. The taxes are also generally higher when investors trade in equity. The good news is that newer and more innovative investment plans are also now available, such as the Equity-Linked Savings Scheme (ELSS). Today, ELSS is a popular investment choice due to its good returns, tax advantages, and low risk. ELSS Funds, also known as Equity Linked Savings Schemes, allow individuals to save a significant amount of money on their tax payments while also generating a profit from equity investments. There are takers for ELSS funds among people of every age group and in every profession.


What Is The ELSS Fund?

ELSS funds are equity funds that invest the majority of their corpus in equities and equity-related instruments. Since ELSS funds offer a tax exemption of up to Rs. 1,50,000 from the annual taxable income under Section 80C of the Income Tax Act, they are also known as tax saving schemes. As the name suggests, an ELSS fund is an equity-oriented scheme with a three-year mandatory lock-in period. In recent years, many taxpayers have used ELSS mutual funds to take advantage of tax benefits. One can receive tax exemption on their investment up to a maximum of Rs. 1,50,000 if they invest in ELSS schemes. Additionally, the income from this scheme will be taxed at 10% as a long-term capital gain (LTCG) at the end of the three-year tenure (if the income is above Rs. 1 lakh).

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How Does Mutual Fund ELSS Compare With Other Tax Savings Schemes?

There are a variety of tax-saving schemes designed to help investors accumulate wealth over time, including Tax Saving Fixed Deposits (FDs), Public Provident Fund (PPF), and National Savings Certificate (NSC), to mention a few. However, the returns offered by these schemes are limited. This is where ELSS stands out, as its returns are generally higher, especially when the markets are on a bullish trend. This makes ELSS mutual funds the ideal investment choice for tax savings, combined with a lock-in period of just three years. As was already indicated, the amount that investors invest in an ELSS scheme qualifies for a tax deduction under Section 80C of the Income Tax Act. A tax deduction of up to Rs. 1.5 lakh can be claimed under the aforementioned provision for investments made in any of the instruments listed, such as ELSS, NSC, PPF, etc.


Features Of ELSS Mutual Funds

The following are some of the features:

  1. Lowest Lock-in Period: When it comes to tax-saving investments, equity-linked savings schemes have the shortest lock-in Period. . Compared to traditional tax-saving fixed deposits, public provident fund, national pension plan, and others, ELSS funds may provide a better return. 
  2. Save Tax: Under section 80C of the Act, investments in ELSS funds offer a tax benefit of up to Rs. 1.5 lakh. Claiming tax deductions facilitates the planning of the taxable income. 
  3. Management of the invested amount: ELSS are managed by professionals who are familiar with market circumstances and are aware of market ups and downs. These fund managers are in charge of overseeing any investments made through ELSS.

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Benefits Of ELSS Mutual Funds

ELSS Tax Saving Funds provide a variety of advantages, such as:

  1. Diversification: Most ELSS funds invest in a broad range of companies, from small-cap to large-cap, and in a lot of sectors. This enables investors to diversify the components of the investment portfolio.
  2. Low investment amount: Many ELSS plans allow investors to begin investing with as little as Rs.500. This ensures that anyone can begin investing without accumulating a sufficient amount of investable capital.
  3. Systematic Investment Plan (SIP) method: Although investors can invest a lump sum in an ELSS scheme, many investors also prefer the SIP investment method since it enables them to contribute small amounts and takes advantage of tax advantages while also giving them the chance to grow their wealth. Additionally, people can invest as much as they choose, but they can only receive tax benefits up to section 80C limits of the Income Tax Act.



Everyone has both short-term and long-term financial objectives. It takes dedication and a well-planned investing strategy to achieve them. Investors want their choices of investments to help them reach their goals and make money over time. Furthermore, there is nothing like it if the investment option allows them to save on taxes. ELSS, or Equity-Linked Savings Schemes, can be helpful in this situation. These tax-saving mutual funds have grown in popularity among investors in recent years.