Definition
ELSS
An Equity Linked Savings Scheme is a tax-saving equity mutual fund that qualifies for Section 80C deduction and has the shortest lock-in among 80C options, at three years.
An ELSS invests predominantly in equities and offers a Section 80C deduction on the amount invested (within the overall 80C cap), under the old tax regime. Its defining feature is a three-year lock-in, the shortest among common 80C instruments.
Because it is equity-oriented, ELSS carries market risk but also the potential for higher long-term returns than fixed 80C options like PPF or tax-saving FDs. Gains are taxed as equity capital gains beyond the exemption limit.
ELSS suits investors comfortable with equity volatility who want tax savings plus growth and the flexibility of a relatively short lock-in.
Related terms
- Section 80CSection 80C allows a deduction from taxable income for specified investments and expenses, such as EPF, PPF, ELSS, life insurance premiums and home-loan principal, under the old regime.
- Expense RatioThe expense ratio is the annual fee a mutual fund or ETF charges as a percentage of assets, covering management and operating costs, which directly reduces investor returns.
- Index FundAn index fund is a passively managed mutual fund that aims to replicate the performance of a market index by holding the same securities in the same proportions, at low cost.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.