Equity Linked Savings Schemes (ELSS) are emerging as a popular investment avenue for individuals seeking to build wealth while enjoying tax benefits under Section 80C of the Income Tax Act, 1961. ELSS Funds are a class of mutual funds that are equity-oriented and invest up to 65% of their portfolio in instruments such as shares. With a mandatory lock-in period of three years, ELSS encourages disciplined investing and provides the potential of better returns because of their exposure to market-linked instruments.

Investors in these funds can choose between growth and dividend options, depending on their financial goals. The three-year lock-in period is the shortest among all tax-saving options, making it relatively liquid for investors having a medium-term financial goal. ELSS investments are eligible for a tax deduction of up to Rs 1.5 lakh per financial year under Section 80C under the old tax scheme. Investors can claim a tax rebate of up to Rs 1,50,000 a year and save up to Rs 46,800 in taxes. The new tax regime does not offer this rebate and treats ELSS like any other equity linked scheme. ELSS funds typically invest in diverse equities from various sectors, thereby decreasing concentration risks. 

With systematic investment plans (SIPs), you can invest a fixed sum each month on a predetermined date in ELSS schemes. There is no cap on the amount that you can invest while the minimum amount varies across funds. SIPs encourage the habit of saving in a disciplined manner at periodic intervals without a large lump sum requirement at the end of the fiscal year.

Recent developments and initiatives in the ELSS space are seeing their popularity grow. 

  • Rising Awareness Through Digital Platforms: Financial literacy initiatives spearheaded by mutual fund houses and fintech platforms have enhanced awareness about ELSS. Additionally, digital platforms have made the investment process easier, allowing investors to start their ELSS journey with as little as Rs 500.
  • Consistent Performance Amid Market Volatility: Despite the economic uncertainties triggered by the pandemic and subsequent geopolitical tensions, ELSS funds have demonstrated resilience. The ability of fund managers to adapt to changing market conditions by diversifying across sectors has been a key factor in ensuring stable returns.
  • Shift Towards Sustainable Investing: Many fund houses have started integrating Environmental, Social, and Governance (ESG) criteria into their ELSS offerings. This allows investors to align their financial goals with their ethical values. ESG-focused ELSS funds are attractive for millennials and environmentally conscious investors.
  • Regulatory Changes and Investor Protection: The Securities and Exchange Board of India (SEBI) has introduced measures to enhance transparency and protect investors. Initiatives such as risk-o-meter (a tool which helps investors understand the level of risk an instrument has) disclosures and performance benchmarking against Total Return Indices (TRI) have empowered investors to make informed decisions. 
  • Increased participation from Tier 2 and Tier 3 cities: The penetration of mutual funds, including ELSS, has extended beyond metros to smaller towns and cities. This growth has been enabled by targeted campaigns, local outreach programs and the proliferation of digital investment platforms. Investors from Tier 2 and Tier 3 cities are increasingly recognizing the benefits of ELSS for both tax savings and wealth creation.

With India’s economy poised for healthy growth in 2025, equity markets are expected to deliver robust returns. ELSS funds, with their equity-centric approach, are likely to attract a larger investor base. While ELSS funds don’t offer guaranteed returns, they help beat inflation as the returns are greater than what FDs and savings bank accounts offer. Risk is diversified as the fund manager distributes the investment carefully across large, mid and small cap firms.

In the future, despite the risk associated with instruments investing largely in equity schemes, continued efforts by SEBI to strengthen investor protection and promote transparency will bolster the credibility of ELSS as an attractive investment option. The growing demand for personalized financial solutions could also lead to the introduction of customizable ELSS products. The integration of artificial intelligence and machine learning in fund management, could enable fund managers to make more informed investment decisions, in the future. 

And above all staying invested will be the key to gaining healthy returns. As the well-known investment philosophy states ‘Time in the market rather than timing the market’ will go a long way to gain the maximum benefit from ELSS funds.

 To know more about ELSS click here

Disclaimer:

The information contained in this document/Video is compiled from third party and publically available sources and is included for general information purposes only. There can be no assurance and guarantee on the yields. Views expressed by the Fund Manager cannot be construed to be a decision to invest. The statements contained herein are based on current views and involve known and unknown risks and uncertainties. Whilst Mirae Asset Investment Managers (India) Private Limited (the AMC) shall have no responsibility/liability whatso- ever for the accuracy or any use or reliance thereof of such information. The AMC, its associate or sponsors or group companies, its Directors or employees accepts no liability for any loss or damage of any kind resulting out of the use of this document. The recipient(s) before acting on any information herein should make his/her/their own investigation and seek appropriate professional advice and shall alone be fully responsible / liable for any decision taken on the basis of information contained herein. Any reliance on the accuracy or use of such information shall be done only after consultation to the financial consultant to understand the specific legal, tax or financial implications. 

An Investor Education and Awareness Initiative by Mirae Asset Mutual Fund . All Mutual Fund investors have to go through a one-time KYC (Know Your Customer) process. Investors should deal only with Registered Mutual Funds (RMF). For further information on KYC, RMFs and procedure to lodge a complaint in case of any grievance, you may refer the Knowledge Center section available on the website of Mirae Asset Mutual Fund.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

Disclaimer:

This article contains sponsored content that may not reflect the independent opinion or views of FinancialExpress.com. Further, FinancialExpress.com cannot be held responsible for the accuracy of any information presented here. Please consult a certified financial advisor before making any decisions based on this article.