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Mutual funds · Tax saving
Tax-saving funds, and the lock-in that comes with them.
Equity Linked Savings Schemes (ELSS) are equity mutual funds that qualify for a tax deduction under the old tax regime. They carry the shortest lock-in of the common tax-saving options, and the full risk of equity.
Reviewed
In short
- A deduction within the ₹1.5 lakh yearly limit long known as Section 80C, carried into the Income-tax Act, 2025 — under the old regime only.
- Each investment is locked for three years from its own date.
- Returns depend on the equity market and can be negative.
How the lock-in works
Every purchase is locked for three years from the day it was made. With a SIP, each monthly instalment unlocks on its own third anniversary.
Old regime or new
The deduction is available only if you file under the old tax regime. Under the new regime, which is the default, an ELSS is simply an equity fund with a lock-in. Decide which regime suits you first; the fund comes second.
Choosing a scheme
Read the scheme information document, the riskometer, the expense ratio and the portfolio. Past returns, especially from a flattering period, say little about the future.
What to check
These decide what you actually keep. Read them before the return figure.
The lock-in
Three years for every instalment, with no early exit.
Your tax regime
No deduction under the new regime.
Risk
An equity fund: expect large movements in both directions.
Growth or income option
An income distribution is paid out of the fund’s own value and is taxable.
Plan type
Regular plans involve payment of commission to distributors; direct plans cost less each year.
Questions people ask
General guidance. The scheme document decides the specifics, and tax rules change.
Can I withdraw from an ELSS before three years?
No. Each investment is locked for three years from its own date.
How does an ELSS compare with PPF or a tax-saving deposit?
They are different things: an ELSS carries equity risk and a three-year lock-in, while PPF and tax-saving deposits pay stated returns with longer lock-ins. Which suits depends on your goal, horizon and tolerance for a fall.
Do I get the deduction under the new tax regime?
No. The deduction is available only under the old regime.
How are ELSS gains taxed?
As equity gains, under the rules in force when you redeem. These have changed in recent Budgets, so check the position before redeeming.
Mutual fund investments are subject to market risks, read all scheme related documents carefully. Past performance does not indicate future returns. Regular plans involve payment of commission to distributors.