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Equity-linked Savings Scheme (ELSS) is one of the most popular Section 80(C) investments, which can get you a tax exemption of up to INR1.5 lakh. These tax-saving mutual funds invest a majority of their portfolio in equity, permitting them to generate higher returns over the long-term compared to other fixed income tax-saving investments.

While ELSS funds aren'tthe sole tax saving investment available, they have some strong advantages as given below.

Higher returns over the long-term

Since ELSS funds invest in stocks and have the best equity allocation among tax-saving investments,they are well-placed to earn inflation-beating returns. Over an extended period, inflation will eat up the returns that traditional debt-oriented investments earn. Equity as an asset class holds the capability to beat inflation. However,ELSS funds can provide you with the most effective of each both – high returns and tax saving.

Lowest lock-in period

While traditional tax-saving investments have long lock-in periods, ELSS funds come with a lock-in of only three years.On the other hand, PPF has a lock-in of fifteen years and NPS needs you to remain invested with until you retire. Wirth ELSS, your cash doesn’t get blocked for long amount and you can even stop investment if you don’t want to invest more.

Highest amount of flexibility

In traditional investment avenues,you have got to remain invested with in one type of possibility only. With ELSS funds,you can diversify across different mutual funds and like different investment styles. You can also keep invested in the ELSS fund once the lock-in amount expires if you think it is generating attractive returns. These tax-saving mutual funds don’t have a maturity date.

You can learn more about tax saving by clicking here.

Few myths and our views

I’ve never invested before. Is an ELSS fund good way to start?

It would be natural for someone who has just started to earn and has never invested in equities before to get nervous about the ups and downs of the stock markets. Yes equities are volatile; but they’re volatile in the short term, and ELSS funds are not short-term investments.

The stock markets go up and go down frequently and can be scary when you look at them on week-by-week basis. ELSS funds have a lock-in period of 3 years, which means they’re long-term investments by default. Equity markets tend to be less volatile if one stays invested for longer periods, ideally greater than 5 years. For most 3-5 year periods, the best ELSS funds have managed to deliver lucrative returns.

I’m already saving taxes. Should I still invest in ELSS funds?

If you’re already availing deductions to save taxes, you’re probably doing so by paying life insurance premium, contributing to public provident fund or putting money in fixed income options like national savings certificate. But if you are not investing in tax-saving mutual funds, you are earning less than you could. Sure, you will still be saving taxes; but tax-saving shouldn’t be the only reason to invest in tax-saving instruments.

This is why you should have a part of your tax-saving portfolio in ELSS funds. If you have already exhausted your Rs. 1.5 lakh 80(C) limit, you can continue the life insurance premium you pay and avail benefits on your children’s tuition fees, but at the same time you can also reduce exposure to other instruments to allow room for investments in tax-saving mutual funds. A healthy balance of debt and equity in your portfolio will allow you to earn better risk-adjusted returns along with tax savings.

So what’s the best way to start investing in ELSS?

For customers of YES BANK, the ideal way to invest in ELSS is through MFOnline.

You can simply log on to your YES BANK NetBanking account, go into MFOnline and choose the Fund and Folio you would like to invest in, and buy it right away! With MFOnline, you can choose funds from more than 33 AMCs and these mutual funds have delivered consistent out-performance with respect to peers/benchmark over a long period and basis multiple risk-adjusted parameters.

So don’t wait any more. Start an ELSS investment right away!

Hope you found these seven questions useful. To know more on Tax solutions, visit YES Tax Solutions.

*The full version of this article by our knowledge partner Cleartax can be accessed at

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