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Among hundreds of mutual fund schemes, only ELSS (Equity Linked Savings Scheme) This is the only category on which tax exemption is available under Section 80C of the Income Tax Act. Taxpayers who choose the old tax regime can claim tax deduction on investments up to ₹1.5 lakh in a financial year. Investors in the 30% tax slab can save up to ₹46,800 in tax annually through this scheme.
ELSS has the shortest lock-in period among all the tax-saving traditional 80C options:
| Tax Saving Option (Section 80C) | Mandatory lock-in period | Return Type |
| ELSS (Tax Saver Mutual Fund) | 3 years | Market Linked (Equity Growth) |
| Tax Saver Bank FD | 5 year | fixed interest |
| National Savings Certificate (NSC) | 5 year | fixed interest |
| ULIP | 5 year | Market Linked / Mixed |
| Public Provident Fund (PPF) | 15 years | government interest rate |
| Sukanya Samriddhi Yojana (SSY) | 21 years (or till marriage) | government interest rate |
As soon as 3 years are completed, investors can redeem their units or if they wish, they can continue investing for better wealth creation.
As per SEBI rules, at least 80% of the total assets of ELSS funds are invested in equity and equity-linked shares. Fund managers invest money in largecap, midcap and smallcap companies in a diversified manner. Compared to fixed return options (like PPF or FD), ELSS are said to be capable of delivering inflation-beating wealth growth returns of 12% to 15% over the long term.
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Lumpsum Investment: If you have deposited ₹1.5 lakh at once, the entire amount is unlocked at once once 3 years are completed.
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Monthly SIP: If you do a SIP of ₹12,500 per month, the lock-in of 3 years will be counted separately from the date of each installment. That means the first installment will be unlocked in the 36th month and the 12th installment in the 48th month.
The profits from ELSS after the lock-in period of 3 years are considered as Long Term Capital Gains (LTCG). Long term capital gains up to ₹1.25 lakh in a financial year are completely tax-free, while profits above that are taxed at the rate of 12.5%.