Tax Saving – The ELSS Way

Who doesn’t love saving tax? People always strive to minimise their tax out-go as much as possible. Parting with your hard-earned money in the form of tax is such a pain. After all, a penny saved (tax) is a penny earned right?

Certain sections under the Income Tax Act allow you to save tax and one such popular section is ‘Section 80C’. Under Section 80C, a deduction of Rs 1,50,000 can be claimed as tax-free from your total income. But is tax saving an end in itself? Can’t you achieve more than just tax-saving?

Yes, by combining tax-saving activity with wise investing, you can build wealth for the future. Among various investment vehicles available for tax saving and wealth creation, ELSS investment is one of the best option available. Read on to know better:

Why Is ELSS A Good Tax-Saving Option?

All other tax saving options have the minimum lock-in period of at least 5 years. Whereas, ELSS funds have the lock-in period of only 3 years.

Additionally, it has been observed that ELSS funds give much higher returns compared to other investment options. For instance, PPF (lock in 15 years) will provide you with 7 to 8 percent returns per annum and fixed deposits (lock in 5 years) will give you around 6 to 6.5 percent returns per annum. Whereas ELSS funds have given nearly three times the returns in the past.

However, returns on ELSS funds are directly linked with stock market and thus depened on their returns. But given sufficient length of time these stock market returns can beat most other assets.

Although ELSS funds have only 3 years of lockin period, it is recommended that you stay invested for at least 5 to 10 years to make the most of it.

How Can ELSS Investment Be Used for Tax Saving?

Under Section 80C, you can avail a maximum benefit of Rs 1,50,000. To avail this benefit, firstly, you need to add up all your expenses (for which you can get benefits under Section 80C). This can include your children’s tuition fee, EPF, medical expenses, and so on.

Let’s say this amount comes up to a total of Rs 45,000 per annum. The next step is to deduct this amount from Rs 1,50,000. By doing so, you will be left Rs 1,05,000 for which you can take benefit. So, to take full benefit of Section 80C, you can invest Rs 1,05,000 in a suitable ELSS fund.


Ram has a gross annual income of Rs 7,50,000. Let’s understand how much tax he can save considering the following two situations:

  1. By investing in an ELSS fund
  2. Not investing in an ELSS fund



Without ELSS Investment

Gross Total Income

Rs 7,50,000

Rs 7,50,000

Exemption Under Section 80C



Total Income

Rs 6,00,000

Rs 7,50,000

Tax on Total Income

Rs 46,350

Rs 77,250

Tax saved on Investment


Rs 30,900


Thus, by investing in an ELSS fund, Ram was able to save tax worth Rs 30,900.

How to Select the Best Tax Saving ELSS?

Although it’s not possible to predict the performance of any fund, the ideal way is to select good ELSS funds based on past 3 years to 5 years performance.

Additionally, you also need to consider factors like risk-return trade-off, portfolio diversification, asset under management, investment approach, types of schemes offered and so on.

Moreover, making ELSS investments through a reputed fund house will give you the following benefits:

  • Easy to Invest: You get an option to invest in hand-picked best performing ELSS funds
  • Easy to track: You can easily track/monitor your investments 24/7
  • Paperless: You can sign up quickly online, complete your KYC and invest within minutes.
  • Easy to withdraw: Withdrawing your investment becomes easy with a single click, with no paperwork needed
  • Bank graded security: Fund houses make it their responsibility and priority to secure all your data and investments


ELSS funds are suitable for all types of investors who need to invest in tax planning instruments. It is a good investment avenue for those who are just starting their careers. The reason is- investing in ELSS funds at an early age can help you shed your inhibition about investing in equities through mutual funds in a big way.

Some Points to Remember:

  • It is vital that you keep reviewing the performance of your ELSS fund even after the lock-in ends
  • If the fund is performing well, there is no harm in staying invested
  • But make sure, not to get led by the fund’s return in isolation
  • Compare the fund’s return as against its benchmark return
  • A fund that cannot beat its benchmark on a consistent basis need not be in your portfolio.

To conclude, if your money is going to get locked up for tax saving, you might as well make the most of it being locked. So, let your ELSS investment pay you handsomely in the long run, and help you invest in a disciplined manner.


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