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ELSS: Why It Can Be The Best Tax Saving Instrument In India?


The Tax season is here. A time when salaried individuals make investments in select tax saving instruments to avail tax benefits under Sec 80C.


At times individuals invest with an aim to submit tax saving proof. Equity Linked Tax Saving Instruments (ELSS) can be one of the best options for individuals who are looking to higher returns with tax saving option.

ELSS: Why It Can Be The Best Tax Saving Instrument In India?

However, individual should consider risk factor and lock period as well.

Why ELSS is best tax saving investment?

InvestmentAnnual ReturnTaxLock In
PPF8.7%Interest income tax free15 years
NSC8.5%Interest income is taxable5-10 years
Life Insurance0-6%Tax free returnsMin 5 years
5 Year Bank FD8.75%Interest is taxable5 years
TAX Saving ELSS12-15% (historical)Returns are tax free3 years


When ELSS is compared to other tax saving instrument such as PPF, and NSC, the lock-in period is major draw as the money will be locked in for 3 years.


ELSS funds provide both dividend and growth options. Where investors are entitled to get expected amount on the expiry of 3 years under growth schemes.

Dividend scheme, investors get a regular dividend income, whenever dividend is declared by the fund, even during the lock-in period.



As ELSS funds are invested in equity, they can give better returns when compared to other peers in fighting inflation. Investment in equity for long term has always provided better returns.

Systematic Investment Plan

Investment through SIP helps you avoid the risk of timing the markets and assist in wealth creation in a disciplined manner by averaging cost of Investments.

Tax Free

Investment in ELSS will qualify for tax deductions under sec 80C of the income tax act subject to a maximum of Rs 1,50,000 in a financial year. While, the same is not applicable for investments under normal mutual fund.

Individual falling in 30 per cent tax slabs can save upto Rs 45,000 under 80C of Income Tax act.


We wish to emphasize that the returns are not assured under ELSS. The returns are uncertain and depending on stock market conditions, even protection of capital cannot be assured.

We have given the past historical returns, but past returns are no indication of future returns. In short, ELSS can be a risky instrument, when compared to tax saving bank deposits, PPF and NSC, where the returns are almost assured.

However, they can come with superior returns and much would depend on stock market conditions and the investment philosophy of the fund. You need to check with a professional investment advisor before investing.

Read more about: elss income tax tax saving
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