₹An equity-linked savings scheme or ELSS is among the popular choices for long-term investors. It offers high returns and offers tax benefits under Section 80C of the Income Tax Act.

Under this scheme, you can claim deductions of up to ₹1.5 lakh a year and save up to ₹46,800 in taxes under Section 80C. These are a class of mutual funds that invest primarily in equity and equity-linked securities like shares. These funds provide a mandatory lock-in period of three years.

Some of the features of ELSS mutual funds include:

– The ELSS comes with a minimum lock-in period of 3 years.

– Under ELSS, at least 80% of the fund is invested in equities.

– The investments are eligible for tax deduction under section 80C, up to ₹1.5 lakh.

– The ELSS provides market-linked returns, while the performance depends on the performance of the underlying equities in the portfolio.

– These funds usually invest in diverse equities from multiple sectors, thereby decreasing concentration risks.

Key benefits:

Tax savings: These funds are eligible for tax deductions to the extent of ₹150,000 under section 80C of the Income Tax Act.

Lowest lock-in period: The ELSS offers a lock-in period of only three years as compared to other tax-saving options with a minimum lock-in period of five years.

Safe and transparent option: ELSS is safe and an excellent investment option to get tax benefits as well as earn valuable returns. Additionally, it is also very transparent.

SIP option available: Investors can choose to go with the SIP option, which allows them to invest a fixed amount at regular or periodic intervals.

Higher returns: ELSS funds generate larger returns than other tax-saving solutions, for they invest in equity schemes. It provides returns in the range of 10-12% generally.

Redemption not compulsory after 3 years: If the investors are satisfied with the returns from their ELSS, they may decide to continue. Redemption is optional after three years, as there is no maximum investment duration.

Professional management: They are managed by experienced fund managers who choose the best investments that are sure to grow.

Who should invest in ELSS?

Anyone can invest in an ELSS; however, these funds are suitable for salaried individuals and first-time investors. This can help them generate higher returns while the investments are also eligible for tax deductions. These funds also have the shortest lock-in period of only three years. These funds offer a way to diversify your investments and help earn a higher profit.

ELSS is an ideal choice if you are a new investor where you can get a flavour of equity investing and mutual funds. The best way to start investing in these funds is through monthly SIPs. These funds offer an entry point into equity investing and mutual funds. These are also suitable options for those seeking tax deductions under Section 80C. ELSS funds can add diversification to a portfolio that is mostly fixed-income.

How to select the right ELSS fund

Selecting the best ELSS fund that fits your risk tolerance and investing objectives requires thorough research and due diligence. Take into account factors, including investment strategy, expense ratio, fund performance and the track record of the fund manager.