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ELSS – Tax Saving ELSS Mutual Funds and How They Work (India 2025)

4/3/20252 min read

ELSS – Tax Saving Mutual Funds and How They Work (India 2025)

If you’re looking to save tax while also building long-term wealth, ELSS (Equity Linked Savings Scheme) mutual funds are one of the smartest investment options in India today. ELSS funds combine the best of both worlds: income tax deductions under Section 80C and returns from equity markets.

In this guide, we explain everything you need to know about ELSS in 2025 — how they work, their benefits, risks, lock-in period, and who should invest in them.

What Is ELSS?

ELSS (Equity Linked Savings Scheme) is a type of mutual fund that primarily invests in equities and comes with a 3-year lock-in period. It is the only category of mutual funds that qualifies for tax deduction under Section 80C of the Income Tax Act, allowing you to save up to ₹46,800 in taxes annually (based on the ₹1.5 lakh limit).

Key Features of ELSS Funds

80C Tax Deduction: Invest up to ₹1.5 lakh/year and claim tax benefits
Shortest Lock-in (3 years): Compared to PPF (15 years) or NSC (5 years)
Market-Linked Returns: Returns depend on the performance of underlying equity investments
SIP & Lumpsum Options: Start with ₹500/month or invest a lumpsum anytime
Growth or Dividend Plans: Most investors now prefer Growth for long-term compounding

How Does the 3-Year Lock-in Work?

Every ELSS investment — whether made via SIP or lumpsum — is locked in for 3 years from the date of investment.

For example:

If you invest ₹5,000 via SIP on 1st April 2025, that installment is locked till 1st April 2028
Each SIP installment has its own lock-in (FIFO method during withdrawal)

Tax Treatment of ELSS Returns (2025)

Returns are taxed as Long-Term Capital Gains (LTCG)
Tax rate: 10% on gains exceeding ₹1 lakh in a financial year
No further tax deduction at redemption, only LTCG applies
No dividend tax benefit—opt for growth plans if your income is in a higher tax bracket

Best ELSS Mutual Funds in 2025

Here are some high-performing ELSS funds to consider:

Axis Long Term Equity Fund – Consistent performance, large-cap oriented
Quant Tax Plan – Aggressive growth and sector allocation strategy
Canara Robeco Equity Tax Saver – Conservative fund with steady returns
Mirae Asset Tax Saver Fund – Well-diversified portfolio with large-cap focus

(Use platforms like One Solution to compare fund performance and select based on risk profile and goal.)

Who Should Invest in ELSS?

Salaried individuals looking to save taxes under Section 80C
First-time investors entering equity markets
Long-term goal planners (minimum 3–5 year horizon)
Investors seeking dual benefit of tax saving + market returns

Advantages of ELSS over Other 80C Instruments

Final Thoughts

ELSS mutual funds are a powerful solution for anyone looking to reduce taxable income and simultaneously invest in the stock market. The 3-year lock-in ensures discipline, while equity exposure delivers long-term growth potential.

To get started with ELSS and build a tax-saving investment portfolio, One Solution offers personalized advisory, SIP setup, and smart tracking tools—all in one seamless experience.