ELSS Mutual Fund
ELSS Mutual Funds, also known as Equity Linked Savings Schemes, are one of the most popular tax-saving investment options for both Indian residents and NRIs. Besides helping you save up to Rs. 1.5 lakh in taxes under Section 80C, they also offer the potential for long-term growth through equity ...read more
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What is ELSS Mutual Fund?
ELSS or Equity Linked Savings Scheme is a type of mutual fund that primarily invests in equity shares of companies across market capitalisations — large-cap, mid-cap, and small-cap.
What makes ELSS unique is its tax-saving feature. Under Section 80C of the Income Tax Act, 1961, you can claim a tax deduction of up to Rs. 1.5 lakh per year on your investments in ELSS. This benefit is available to both Indian residents and NRIs
Best Investment Plans in UAE
Some of the best Investment quotes in UAE & Dubai are:
Who Should Invest in ELSS Mutual Funds?
Salaried Employees
Ideal for those seeking to complement EPF with higher returns and tax benefits.
First-time Investors
Good exposure to equity mutual funds with forced discipline due to the lock-in period. SIPs help in rupee-cost averaging.
Best ELSS Funds to Consider in 2026
Here are some of the best ELSS funds in 2026—
- SBI Long-Term Equity – Excellent 10‑year track record, no exit load.
- DSP ELSS Tax Saver – Strong historical performance and portfolio diversification.
- Bandhan ELSS Tax Saver Fund – High returns in a conservative package.
- Quant ELSS Tax Saver – Active management, top-tier returns.
- Aditya Birla Sun Life ELSS Tax Saver Fund -
Additional top picks:
- ICICI Prudential ELSS Tax Saver Fund – Good for moderate risk; equity + debt balance
- Mirae Asset ELSS Tax Saver Fund – Large-cap stability
- Parag Parikh ELSS Tax Saver Fund – Focused on value investing
Don’t let your savings sit idle; make them work for youExplore ELSS funds and SIP options tailored for UAE residents. Start your plan on Policybazaar.ae. It takes less than 5 minutes. |
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How ELSS Funds for NRI Work?
Here how ELSS mutual funds work —
- Fund Structure: At least 80% invested in equity and equity-related securities, plus a small debt portion.
- Tax Benefits: Up to Rs. 1.5 lakh deduction under Section 80C.
- Lock-in Period: Mandatory 3-year lock-in ensures disciplined investing.
- Market-linked returns: Offers higher return potential compared to traditional tax-saving instruments like PPF or FD.
- NRI-friendly: NRIs can invest and claim tax deductions (if they file income tax in India).
Investing Methods: SIP vs Lump Sum
- SIP (Systematic Investment Plan): Great for beginners and market-timers. It averages out purchase costs and reduces the risk of market volatility.
- Lump Sum: Suitable if markets are down and you’re confident in future growth, but carries higher short-term risk.
Key Features of ELSS Mutual Funds
|
Feature |
Why It Matters |
|---|---|
|
Dual Benefit |
Tax deduction + equity growth: a rare combo in the investment world |
|
Beats Inflation |
Equity exposure helps generate returns above inflation rates |
|
Expert Management |
Fund managers leverage research and strategy for optimal returns |
|
Shortest Lock-in |
Only 3 years, compared to 5–15 years for other instruments |
Why Should You Invest in ELSS Mutual Funds?
If your goal is to grow long-term wealth, ELSS (Equity-Linked Savings Scheme) funds are one of the most efficient options available under the old tax regime. These mutual funds invest predominantly in equities, offering a dual benefit of tax deductions and market-linked returns.
1️⃣ Dual Advantage: Tax Savings + Wealth Creation
ELSS offers a powerful combination, reducing your taxable income while building a long-term investment portfolio.
In short, ELSS mutual funds help you save tax today (if you are an NRI investing in India) while building wealth for tomorrow, a unique advantage compared to most tax-saving schemes.
2️⃣ Shortest Lock-In: Just 3 Years
Liquidity matters. ELSS stands out by offering one of the lowest lock-ins among tax-saving products, giving investors more flexibility.
|
Tax-Saving Investment |
Lock-In Period |
|---|---|
|
ELSS Funds |
3 years |
|
PPF |
15 years |
|
NSC |
5 years |
|
Tax-Saving FD |
5 years |
|
EPF |
Till retirement |
After 3 years, you may either redeem your units or stay invested for long-term growth, making ELSS suitable for long-term planning without sacrificing liquidity.
3️⃣ Flexible Investment Modes: SIP & Lump Sum
ELSS accommodates all types of investors, those who prefer discipline and those who prefer timing.
|
Investment Mode |
Best For |
Benefits |
|---|---|---|
|
SIP (Systematic Investment Plan) |
Monthly savers, first-time investors |
Rupee-cost averaging, discipline, and gradual wealth accumulation |
|
Lump Sum |
Investors with surplus funds |
Potential to benefit if markets are undervalued at entry |
Tip: SIPs smooth out volatility and encourage consistency, making ELSS less sensitive to market timing—especially useful for beginners.
4️⃣ Higher Returns Than Most Traditional 80C Options
While returns are not guaranteed, ELSS mutual funds historically deliver stronger long-term performance, backed by equity exposure.
|
Tax-Saving Option |
Expected Annual Returns |
|---|---|
|
ELSS Funds |
~10–12%+ (market-linked) |
|
PPF |
7–8% |
|
NSC |
6–8% |
|
Tax-Saving FD |
6–7% |
|
EPF |
8.15% (FY 2023-24) |
Bottom line: If your priority is wealth creation alongside tax savings, ELSS is among the strongest options.
5️⃣ Cost-Effective: No Entry or Exit Load
Most ELSS funds do not charge entry or exit loads, reducing cost leakage and maximising net returns.
|
Investment Type |
Entry Load |
Exit Load |
|---|---|---|
|
ELSS Funds |
No |
No |
|
Regular Equity Funds |
Sometimes |
If withdrawn early |
|
Tax-Saving FD |
No |
No |
|
ULIPs |
Yes |
Yes |
6️⃣ No Cap on Investment Amount
Although Section 80C allows tax benefits only up to ₹1.5 lakh, there is no upper limit on investing more into ELSS (if you are an NRI investing in India). Many long-term wealth-focused investors continue SIPs beyond the tax benefit for sustained equity exposure.
7️⃣ Compounding Over Time: Real Corpus Growth Example
Let’s assume you invest AED 5,000 per month via SIP for 10 years, targeting ~12% returns.
|
Timeframe |
Total Invested |
Estimated Wealth Gain |
Approx. Value |
|---|---|---|---|
|
1 year |
AED 60,000 |
AED 3,600 |
AED 63,600 |
|
5 years |
AED 3,00,000 |
~AED 1,12,700 |
~AED 4,12,700 |
|
10 years |
AED 6,00,000 |
~AED 5,32,700 |
~AED 11,32,700 |
Your investment nearly doubles, thanks to the joint power of compounding and equity growth.
Best Time to Invest in ELSS Mutual Funds
Most investors rush to invest in March merely for tax benefits, but spacing investments out is more effective.
|
Strategy |
Why It Works |
|---|---|
|
Start early in the year |
More time in the market = greater compounding |
|
Use SIPs |
Reduces timing risk and builds discipline |
|
Stay invested 5+ years |
Allows equities to iron out volatility and perform |
Ideal approach: Invest regularly via SIPs and stay invested beyond the lock-in to maximise wealth building
What to Look For When Choosing ELSS Mutual Funds?
1. Investment Strategy
ELSS mutual funds may invest in large, mid, or small-cap companies.
- Large-cap focus: These funds invest in well-established companies, offering stable returns with lower risk.
- Mid/small-cap focus: These target growing businesses, which can generate higher returns but come with higher volatility. Choose the strategy based on your risk appetite and investment horizon.
2. Performance Consistency
Rather than looking at only last year’s performance, review the fund’s rolling returns over 3 to 5 years. This tells you whether the fund has performed well across different market cycles (bull and bear), not just in favourable times.
3. Risk-adjusted Returns
Returns are important, but the risk taken to achieve them matters too.
- Sharpe ratio measures how much extra return a fund generates for each unit of risk
- A higher Sharpe ratio indicates a better risk-adjusted return. It helps you avoid funds that take excessive risks for marginal gains.
Did You Know?The Sharpe ratio helps you understand how much extra return you're getting for the risk you’re taking. It shows how much your investment earns over the risk-free rate (like a government bond), for every unit of risk taken (with risk measured using standard deviation). A higher Sharpe ratio means you're getting better returns for the risk you're taking, which is a sign of a well-performing investment. |
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4. Expense Ratio
This is the annual fee a fund charges as a percentage of your investment.
- A high expense ratio can eat into your returns over time.
- However, a slightly higher cost may be justified if the fund consistently delivers superior performance. Balance cost with quality.
5. Risk Profile Match
Choose a fund that aligns with your risk tolerance.
- If market ups and downs make you anxious, prefer large-cap, low-risk ELSS funds.
- If you can stay invested longer and stomach volatility, you may benefit from mid/small-cap focused ELSS.
Taxation Rules of ELSS Funds
Once your ELSS units complete the 3-year lock-in —
- Gains are treated as long-term capital gains (LTCG)
- LTCG up to ₹1 lakh/year is tax-free
- Gains above this are taxed at 10% (without indexation)
Meanwhile, your principal investment qualifies for Section 80C deductions up to ₹1.5 lakh annually.
How to Choose a Tax-Saving ELSS Mutual Fund?
1. Match Your Goals
Ask yourself: Are you investing for just tax-saving, or also for long-term wealth creation?
- If tax saving is the only goal, safety and stability might be your priority.
- If you want growth with tax saving, look for funds with good long-term performance.
2. Understand the Investment Strategy
Each fund follows a different approach: some are aggressive, others conservative.
- It’s always better to read the fund’s investment objective and portfolio allocation.
- Understand where your money will be invested: sectors, market cap, diversification, etc.
3. Risk-Reward Analysis
Make sure that the fund’s potential reward is worth the risk.
- High returns are tempting, but not if they come with sleepless nights.
- Review historical risk-return patterns to assess if the volatility is manageable for you.
4. Liquidity Needs
ELSS funds for NRI have a mandatory 3-year lock-in period.
- Do not invest if you think you’ll need this money in the short term.
- Treat ELSS as part of your medium- to long-term goals like home purchase, children’s education, or retirement.
Methods to Invest in ELSS Mutual Funds
|
Option |
What It Means |
Best For |
|---|---|---|
|
Growth Option |
No dividends paid out. Gains are reinvested, allowing compounding to work |
Long-term investors focused on wealth creation |
|
Dividend Option |
Regular dividends are paid out. These are taxed as per your income slab |
Investors looking for periodic income |
|
Dividend Reinvestment |
Dividends are reinvested back into the fund. NAV increases with the market |
Beneficial when markets are rising and you want to grow investment size |
Key Considerations Before Investing in ELSS Mutual Funds
1. Investment Horizon
ELSS funds for NRIs work best when held for 5+ years. While the lock-in is 3 years, staying invested longer helps to ride out volatility and achieve higher returns.
2. Returns
These funds are market-linked, so returns are not guaranteed. However, over a longer period, they have historically outperformed other tax-saving instruments like PPF or FD.
3. Lock-in Period
A mandatory 3-year lock-in applies. You cannot withdraw your investment before this period, even in emergencies.
4. Expense Ratio
This is the annual cost of managing the fund. Opt for funds with a reasonable expense ratio (generally below 1.5% for direct plans).
5. Fund Manager Skill
A good fund manager can make all the difference in a volatile market. Review their past track record, experience, and how consistently they’ve beaten the benchmark.
6. Risk-adjusted Returns
Use ratios like Sharpe to understand how well the fund performs relative to the risk it takes. A fund with moderate returns but low volatility might be better than one with higher but unstable returns.
What Are the Risks Involved in Best ELSS Funds?
Here are certain risks related to ELSS mutual funds that you should be aware of —
- Market Volatility: Best ELSS funds invest in equities, which means value can fluctuate daily. Short-term market corrections can impact your returns if you're not patient.
- Liquidity Risk: You cannot withdraw your money for 3 years. Even after that, during market downturns, selling may not be optimal due to low prices.
- Event Risk: Unexpected events like policy changes, geopolitical issues, or industry-specific disruptions can impact fund performance.
- Price Risk: Since ELSS mutual funds are equity-based, stock prices can fluctuate significantly. This leads to changes in the Net Asset Value (NAV) of the fund, affecting the value of your investment.
ELSS vs Other Tax‑Saving Options
|
Plan |
Returns |
Lock‑in Period |
Tax on Returns |
|---|---|---|---|
|
5‑Yr Fixed Deposit |
~4–6% |
5 years |
Taxed as per slab |
|
PPF |
~7–8% |
15 years |
Tax-free |
|
NSC |
~7–8% |
5 years |
Taxable |
|
NPS |
~8–10% |
Till retirement |
Partially taxable |
|
ELSS Funds |
15–18%+ |
3 years |
10% beyond Rs. 1 lakh LTCG |
Bottom line: ELSS gives early access to your funds (3-year lock-in) while delivering higher growth potential, and significant tax savings. It is a top choice for anyone looking to make the most of Section 80C.
How to Invest in ELSS Mutual Funds?
- Open a mutual fund account online (via bank, AMFI, or MF platforms)
- Choose lump-sum or SIP (Rs. 500 minimum)
- Maintain at least Rs. 1.5 lakh to maximise tax benefits
- Monitor performance and stay invested beyond initial 3‑year lock‑in
Conclusion
ELSS mutual funds are an excellent inclusion: they boost growth, offer disciplined investing, and reduce taxes. Whether you're a long-time resident or an NRI, consider selecting one of the best ELSS funds using disciplined SIP contributions. This will build wealth, help meet financial targets, and make your portfolio tax-efficient for years to come.
📌 Tip: Include ELSS in your broader financial strategy blend, alongside emergency funds, insurance, and retirement saving, for a well-rounded plan.
FAQs on ELSS Mutual Funds
Is ELSS risk-free?
ELSS invests primarily in equities, so the value fluctuates with the market. However, staying invested for 5–7+ years generally reduces volatility and improves return potential.
Are ELSS funds available for NRIs?
Yes, ELSS funds for NRI are eligible. NRIs can invest via NRE/NRO/FCNR accounts. ELSS gives NRIs the same benefits: equity growth and tax savings under Section 80C via PAN & valid KYC.
How to calculate ELSS returns?
You can use the formula FV = C × (1 + r)^t to calculate your return or an online ELSS calculator.
Can I redeem ELSS after 3 years?
Yes. After completing the lock-in period, you can redeem your funds anytime.
What’s ELSS equity exposure?
ELSS mutual funds offer minimum 80% exposure in equity, with diversification across sectors and market caps.
Can I withdraw my ELSS funds investment during the lock-in period?
No, once invested, you can not withdraw your investment during the lock-in period of 3 years. You will need to wait until the period expires.
Can I withdraw my ELSS investment during the lock-in period?
No. An ELSS mutual fund does not allow partial or full withdrawal before 3 years. You must stay invested until the lock-in ends.
What’s the equity exposure in ELSS funds?
ELSS mutual funds invest at least 80% of their portfolio in equities, diversified across sectors and market caps to balance growth and risk.
Can I withdraw after every 3 years?
Yes. ELSS follows a “3-year lock-in per investment” rule. Each SIP instalment or lump-sum investment becomes redeemable exactly 3 years from its investment date.
What do ELSS funds invest in?
ELSS mutual funds primarily invest in equities, often large-cap dominant, with allocations to mid and small caps for higher growth potential.
How long should I stay invested in ELSS?
While 3 years is the lock-in, a minimum 5-year horizon is recommended for meaningful compounding and smoother returns. Many investors stay invested for 7–10 years to maximise growth.
Are ELSS returns better than fixed deposits (FDs)?
Historically, yes. ELSS has delivered higher inflation-adjusted returns than FDs. However, returns are market-linked and not guaranteed, unlike fixed deposit interest.
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