ELSS Mutual Funds – What is ELSS Funds & How to Invest in India| North Loop Official Blog
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28 Mar 2020

ELSS Mutual Funds – What is ELSS Funds & How to Invest in India

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What is ELSS Fund

While looking for investments, you may have come across ELSS Funds and wondered to yourself - what is ELSS fund? Equity Linked Fund Schemes (ELSS Funds) are tax saving mutual funds that help you get exemptions from the income tax authorities in India.
In an ELSS fund, you can get a tax exemption from your income taxes for the amount you invest every year (up to a maximum of Rs. 150,000).

These are funds that invest in equities (as the name suggests), and have a lock-in of three years (so you will only be able to withdraw your investment after three years). After three years, your gains are taxed according to long term capital gains, and taxed at 10% (if the gain is more than Rs. 1,00,000).

Features of ELSS Mutual Funds

  • The ELSS fund must invest at least 80% into equity or equity-related instruments.
  • ELSS funds are diversified funds that invest across market capitalizations, themes, and sectors..
  • There is a minimum lock-in of three years, but no maximum time limit for your investment.
  • The tax exemption is under Section 80C of the Income Tax Act..
  • Due to the lock-in, your gains are considered long term capital gains and therefore taxed accordingly.
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Why should you invest in ELSS Tax Saving Mutual Funds?

Investors consider ELSS Funds as they have the following benefits, aside from the tax exemption:
  • Diversification And Reduced Risk - since ELSS funds are diversified across industries, company sizes etc., an investment in an ELSS fund allows you to diversify your portfolio and reduce its overall risk
  • Low minimum amount to invest - the majority of ELSS funds allow you to invest with as little as Rs. 500.
  • You can use SIPs for ELSS– you can invest using SIPs to invest in ELSS schemes and gain tax benefits more than just investing a one-time lump sum, as every SIP will be considered a separate investment and thus taxed accordingly.

What to consider when investing in a ELSS

Should I invest in lump sum or SIP in ELSS
Rather than do a lump sum just before tax season to get the tax benefit, start planning your ELSS investment with an SIP. This strategy will increase your returns, as you will be able to invest in the market over a longer period of time, and therefore increase the likelihood that your average cost is lower than a one time investment.

How long should I invest in an ELSS
Even though you have a lock-in period of three years, this is still far too short. The North Loop recommended strategy is to invest for the long term (at least 5+ years) to get the most benefit for your savings, income and retirement plans.

List of ELSS Funds in India

Here is a list of some ELSS funds, ranked in order of their returns:
Mutual Fund NameCategoryExit Load / Withdrawal Fee
Axis Liquid FundLiquidZero
Aditya Birla Sun Life Corporate Bond FundShort Term DebtZero
Quantum Tax Saving FundEquity Large CapZero
Franklin India Low Duration FundUltra Short Term Debt0.5% if you withdraw in your first 3 months. After that, zero!
Franklin India Focused Equity FundEquity Multi Cap1% if you withdraw in your first year. After that, zero!
Mirae Asset Emerging Bluechip FundEquity Mid Cap1% if you withdraw in your first year. After that, zero!
DSP Blackrock Equity & Bond FundHybrid Equity1% if you withdraw in your first year. After that, zero!
Reliance Tax Saver (ELSS) FundELSSZero

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This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended be advice. You must obtain professional advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax, investment or other professional advice from North Loop or its affiliates. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date. All opinions expressed do not reflect the views of North Loop nor are endorsed by North Loop.