How to set up your first ELSS investment (Section 80C tax-saver)
ELSS (Equity Linked Savings Scheme) is the only mutual fund category that qualifies for Section 80C tax deduction. With its 3-year lock-in (shortest among 80C instruments) and equity exposure, ELSS is a popular tax-saving + wealth-building combination: but only under the old tax regime.
Conflict-of-interest disclosure. This guide is published by WebNotes Editorial Team for informational purposes. WebNotes has no commercial relationship with any AMC. No affiliate commission is earned. For complex tax situations or to choose between old and new tax regimes, consult a Chartered Accountant.
Step-by-step procedure
See the procedure infobox above.
ELSS vs other 80C instruments
| Instrument | Lock-in | Expected return | Risk |
|---|---|---|---|
| ELSS | 3 years | 10-12% (equity) | High |
| PPF | 15 years | 7-7.5% (govt rate) | Sovereign |
| EPF | Until employment | EPFO rate | Sovereign-equivalent |
| 5-year tax-saving FD | 5 years | 6-7% | Bank credit |
| NSC | 5 years | 7-7.5% | Sovereign |
| Life insurance (ULIP / endowment) | Policy term | 4-6% (often) | Insurer credit |
| Home loan principal | - | n/a | n/a |
| Children tuition fees | - | n/a | n/a |
ELSS has the shortest lock-in and highest expected return among 80C options, with the trade-off of equity volatility.
Tax regime decision
Under the new tax regime (default from FY 2023-24):
- No Section 80C deduction.
- Lower slab rates.
- Standard deduction Rs 75,000 (FY 2024-25).
Under the old regime:
- Section 80C deduction up to Rs 1.5 lakh.
- Higher slab rates.
ELSS makes sense only if you’re in the old regime. For most salaried investors with significant 80C-eligible spending (EPF + home loan + insurance), old regime is still preferable. Run both regime calculations annually.
Lock-in mechanics
- Each SIP installment has its own 3-year lock-in starting from the installment date.
- After 3 years, the installment is freely redeemable.
- For lump-sum, single 3-year lock-in from purchase date.
- Cannot redeem before lock-in expires (no exceptions, unlike PPF’s partial withdrawal).
Specific ELSS schemes (illustrative)
| Scheme | Style |
|---|---|
| Axis Long Term Equity Fund | Quality-growth |
| Mirae Asset Tax Saver Fund | Large-cap-tilted |
| Parag Parikh Tax Saver Fund | Multi-cap, international tilt |
| ICICI Pru Long Term Equity Fund (Tax Saving) | Diversified |
| ABSL Tax Relief 96 | One of India’s oldest ELSS |
| SBI Long Term Equity Fund | Large-cap |
| Quant Tax Plan | Momentum-driven |
All are equity-mode funds with 3-year lock-in.
Combined with 80CCD(1B)
For an additional Rs 50,000 deduction:
- NPS Tier 1 contribution under Section 80CCD(1B) (over and above Rs 1.5 lakh 80C).
- Useful for retirement planning alongside ELSS for tax-deductible 80C.
See also
- How to choose your first mutual fund
- How to set up your first equity fund investment
- How to set up your first hybrid fund investment
- How to set up your first index fund investment
- How to decide SIP vs lump-sum
- How to decide direct plan vs regular plan
- How to decide growth vs IDCW option
- How to set SIP amount from your goals
- How to read a fund factsheet (first-time)
- How to read a riskometer (first-time)
- ELSS (Equity Linked Savings Scheme)
- Section 80C
- Old vs new tax regime
- PPF (Public Provident Fund)
- EPF (Employees Provident Fund)
- NPS Tier 1
- Section 80CCD(1B)
- Axis Long Term Equity Fund
- Mirae Asset Tax Saver Fund
- Parag Parikh Tax Saver Fund
- ABSL Tax Relief 96
- Quant Tax Plan
- Section 112A (LTCG)
- Equity mutual fund taxation in India
- Mutual funds in India
- AMFI
- SEBI
External references
References
- Income Tax Act, 1961, Section 80C (Equity-Linked Savings Scheme).
- SEBI (Mutual Funds) Regulations, 1996: ELSS provisions.
- Finance Act, 2020: dividend tax change.
- Finance Act, 2023: old vs new regime defaults.
- AMFI Best Practice Guidelines on ELSS.