{"id":12193,"date":"2026-05-22T13:38:38","date_gmt":"2026-05-22T13:38:38","guid":{"rendered":"https:\/\/lemonn.co.in\/blog\/glossary\/elss-equity-linked-savings-scheme\/"},"modified":"2026-05-22T13:38:38","modified_gmt":"2026-05-22T13:38:38","slug":"elss-equity-linked-savings-scheme","status":"publish","type":"glossary","link":"https:\/\/lemonn.co.in\/blog\/glossary\/elss-equity-linked-savings-scheme\/","title":{"rendered":"ELSS (Equity Linked Savings Scheme)"},"content":{"rendered":"<p>An ELSS &#x2014; <a class=\"glossaryLink\" href=\"https:\/\/lemonn.co.in\/blog\/glossary\/equity\/\" data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]' tabindex=\"0\" role=\"link\">Equity<\/a> Linked Savings Scheme &#x2014; is a <a class=\"glossaryLink\" href=\"https:\/\/lemonn.co.in\/blog\/glossary\/mutual-fund\/\" data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]' tabindex=\"0\" role=\"link\">mutual fund<\/a> that invests primarily in equities and qualifies for <a class=\"glossaryLink\"  href=\"https:\/\/lemonn.co.in\/blog\/glossary\/tax\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'  tabindex='0' role='link'>tax<\/a> deduction under <a class=\"glossaryLink\" href=\"https:\/\/lemonn.co.in\/blog\/glossary\/section-80c\/\" data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]' tabindex=\"0\" role=\"link\">Section 80C<\/a> of the <a class=\"glossaryLink\" href=\"https:\/\/lemonn.co.in\/blog\/glossary\/income-tax-act\/\" data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]' tabindex=\"0\" role=\"link\">Income Tax Act<\/a>. With a mandatory three-year lock-in (the shortest among 80C investments) and equity-like returns potential, ELSS funds have become the go-to tax-saving option for Indian salaried investors.<\/p>\n<div><strong>Key takeaways:<\/strong>\n<ul>\n<li>ELSS funds invest at least 80% in equities.<\/li>\n<li>Investments up to &#x20B9;1.5 lakh per year qualify for Section 80C deduction.<\/li>\n<li>Mandatory three-year lock-in per investment (each <a class=\"glossaryLink\"  href=\"https:\/\/lemonn.co.in\/blog\/glossary\/sip\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'  tabindex='0' role='link'>SIP<\/a> is locked separately).<\/li>\n<li>Long-term <a class=\"glossaryLink\" href=\"https:\/\/lemonn.co.in\/blog\/glossary\/capital-gain\/\" data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]' tabindex=\"0\" role=\"link\">capital gain<\/a>s over &#x20B9;1 lakh are taxed at 10%.<\/li>\n<li>Among the shortest lock-ins for 80C instruments &#x2014; others are 5&#x2013;15 years.<\/li>\n<\/ul>\n<\/div>\n<h2 id=\"how-elss-works\">How ELSS works<\/h2>\n<p>You invest in an ELSS scheme via <a class=\"glossaryLink\" href=\"https:\/\/lemonn.co.in\/blog\/glossary\/lump-sum\/\" data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]' tabindex=\"0\" role=\"link\">lump sum<\/a> or SIP. Investments are locked for three years from the date of each purchase. After three years, you can redeem freely or stay invested. The tax deduction applies in the financial year of the investment, capped at &#8377;1.5 lakh under Section 80C (which also includes <a class=\"glossaryLink\"  href=\"https:\/\/lemonn.co.in\/blog\/glossary\/epf\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'  tabindex='0' role='link'>EPF<\/a>, PPF, life <a class=\"glossaryLink\" href=\"https:\/\/lemonn.co.in\/blog\/glossary\/insurance-premium\/\" data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]' tabindex=\"0\" role=\"link\">insurance premium<\/a>s, etc.).<\/p>\n<h2 id=\"returns-and-risk-profile\">Returns and <a class=\"glossaryLink\" href=\"https:\/\/lemonn.co.in\/blog\/glossary\/risk-profile\/\" data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]' tabindex=\"0\" role=\"link\">risk profile<\/a><\/h2>\n<p>Because ELSS invests in equities, returns mirror the broader equity market &#x2014; historically averaging 10&#x2013;14% CAGR over long periods. Short-term <a class=\"glossaryLink\" href=\"https:\/\/lemonn.co.in\/blog\/glossary\/volatility\/\" data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]' tabindex=\"0\" role=\"link\">volatility<\/a> is inherent. The lock-in helps investors stay through downturns, often improving risk-adjusted outcomes versus daily-redemption funds.<\/p>\n<h2 id=\"elss-vs-other-80c-instruments\">ELSS vs other 80C instruments<\/h2>\n<table>\n<tr>\n<th>Instrument<\/th>\n<th>Lock-in<\/th>\n<th>Returns potential<\/th>\n<\/tr>\n<tr>\n<td>ELSS<\/td>\n<td>3 years<\/td>\n<td>Equity (high)<\/td>\n<\/tr>\n<tr>\n<td>PPF<\/td>\n<td>15 years<\/td>\n<td>~7&#x2013;8%<\/td>\n<\/tr>\n<tr>\n<td>EPF<\/td>\n<td>Till retirement<\/td>\n<td>~8%<\/td>\n<\/tr>\n<tr>\n<td>NPS (Tier 1)<\/td>\n<td>Till 60<\/td>\n<td>Equity + debt mix<\/td>\n<\/tr>\n<tr>\n<td>5-year tax saver FD<\/td>\n<td>5 years<\/td>\n<td>~6&#x2013;7%<\/td>\n<\/tr>\n<\/table>\n<h2 id=\"tax-treatment-on-redemption\">Tax treatment on redemption<\/h2>\n<ul>\n<li>Holding period is at least 3 years (lock-in), so gains are long-term.<\/li>\n<li>LTCG above &#x20B9;1 lakh per financial year taxed at 10% without <a class=\"glossaryLink\" href=\"https:\/\/lemonn.co.in\/blog\/glossary\/indexation\/\" data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]' tabindex=\"0\" role=\"link\">indexation<\/a>.<\/li>\n<li>Combined ELSS gains + other equity gains share the &#x20B9;1 lakh exemption.<\/li>\n<\/ul>\n<h2 id=\"sip-in-elss-important-nuance\">SIP in ELSS &#x2014; important nuance<\/h2>\n<p>If you start an SIP in ELSS, each monthly installment has its own three-year lock-in. So units bought in April 2025 unlock in April 2028; units bought in May 2025 unlock in May 2028; and so on. This staggered lock-in means redeeming a &#x201C;whole SIP&#x201D; at any single time requires waiting for the latest installment to clear three years.<\/p>\n<h2 id=\"how-to-pick-an-elss-fund\">How to pick an ELSS fund<\/h2>\n<ol>\n<li>Check rolling 5- and 10-year returns vs <a class=\"glossaryLink\" href=\"https:\/\/lemonn.co.in\/blog\/glossary\/benchmark\/\" data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]' tabindex=\"0\" role=\"link\">benchmark<\/a>.<\/li>\n<li>Compare <a class=\"glossaryLink\" href=\"https:\/\/lemonn.co.in\/blog\/glossary\/expense-ratio\/\" data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]' tabindex=\"0\" role=\"link\">expense ratio<\/a>s &#x2014; direct plans always cheaper.<\/li>\n<li>Look at <a class=\"glossaryLink\" href=\"https:\/\/lemonn.co.in\/blog\/glossary\/portfolio\/\" data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]' tabindex=\"0\" role=\"link\">portfolio<\/a> composition &#x2014; large-cap vs multi-cap tilt.<\/li>\n<li>Assess fund-manager tenure and stability.<\/li>\n<li>Avoid over-<a class=\"glossaryLink\" href=\"https:\/\/lemonn.co.in\/blog\/glossary\/diversification\/\" data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]' tabindex=\"0\" role=\"link\">diversification<\/a> &#x2014; one or two ELSS funds in your portfolio is plenty.<\/li>\n<\/ol>\n<h2 id=\"frequently-asked-questions\">Frequently asked questions<\/h2>\n<div>\n<h3 id=\"can-i-invest-more-than-&#x20B9;1-5-lakh-in-elss\">Can I invest more than &#x20B9;1.5 lakh in ELSS?<\/h3>\n<p>Yes, but only &#x20B9;1.5 lakh qualifies for 80C deduction. Any additional amount is invested normally without tax benefit.<\/p>\n<h3 id=\"is-elss-suitable-under-the-new-tax-regime\">Is ELSS suitable under the new tax regime?<\/h3>\n<p>The new regime does not allow 80C deductions; ELSS still works as an equity investment but loses the tax benefit. Choose based on which regime you opt for.<\/p>\n<h3 id=\"what-happens-if-i-redeem-before-3-years\">What happens if I redeem before 3 years?<\/h3>\n<p>You cannot &mdash; the lock-in is mandatory by <a class=\"glossaryLink\"  href=\"https:\/\/lemonn.co.in\/blog\/glossary\/sebi\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'  tabindex='0' role='link'>SEBI<\/a> rules.<\/p>\n<h3 id=\"are-dividends-from-elss-taxed\">Are <a class=\"glossaryLink\" href=\"https:\/\/lemonn.co.in\/blog\/glossary\/dividend\/\" data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]' tabindex=\"0\" role=\"link\">dividend<\/a>s from ELSS taxed?<\/h3>\n<p>Yes, at slab rate from FY2020 onwards. Prefer growth option for tax efficiency.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>An ELSS &#x2014; Equity Linked Savings Scheme &#x2014; is a mutual fund that invests primarily in equities and qualifies for tax deduction under Section 80C of the <a class=\"glossaryLink\" href=\"https:\/\/lemonn.co.in\/blog\/glossary\/income-tax\/\" data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]' tabindex=\"0\" role=\"link\">Income Tax<\/a> Act. With a mandatory three-year lock-in (the shortest among 80C investments) and equity-like returns potential, ELSS funds have become the go-to tax-saving option for Indian salaried [&#x2026;]<\/p>\n","protected":false},"author":3,"featured_media":0,"menu_order":0,"template":"","meta":{"_uag_custom_page_level_css":"","footnotes":""},"class_list":["post-12193","glossary","type-glossary","status-publish","hentry"],"blocksy_meta":[],"uagb_featured_image_src":{"full":false,"thumbnail":false,"medium":false,"medium_large":false,"large":false,"1536x1536":false,"2048x2048":false,"web-stories-poster-portrait":false,"web-stories-publisher-logo":false,"web-stories-thumbnail":false},"uagb_author_info":{"display_name":"Team Lemonn","author_link":"https:\/\/lemonn.co.in\/blog\/author\/ashu\/"},"uagb_comment_info":0,"uagb_excerpt":"An ELSS &#x2014; Equity Linked Savings Scheme &#x2014; is a mutual fund that invests primarily in equities and qualifies for tax deduction under Section 80C of the Income Tax Act. With a mandatory three-year lock-in (the shortest among 80C investments) and equity-like returns potential, ELSS funds have become the go-to tax-saving option for Indian salaried&hellip;","_links":{"self":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary\/12193","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary"}],"about":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/types\/glossary"}],"author":[{"embeddable":true,"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/users\/3"}],"version-history":[{"count":0,"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary\/12193\/revisions"}],"wp:attachment":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/media?parent=12193"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}