ELSS

An Equity Linked Savings Scheme is a category of equity mutual fund that invests mainly in shares and carries a statutory lock-in of three years from the date of each investment. In return, investments can qualify for a deduction from taxable income under the old tax regime, within an overall annual limit shared with other eligible investments and expenses.

Why it matters

ELSS combines a potential tax deduction with equity exposure. Its lock-in is short compared with many other tax-saving options, but the investment itself is fully market-linked: its value can rise or fall like any equity fund’s.

How to read it

• Each instalment is locked separately. With an ELSS SIP, every instalment has its own three-year lock-in, so the last instalment of a year becomes redeemable three years after its own date.
• The deduction depends on your tax regime. Under the new tax regime, which is the default, this deduction is not available; the investment is then simply an equity fund with a lock-in.
• Gains are taxed as equity gains on redemption under current rules.

Common misconceptions

• “ELSS is a tax product first.” It is an equity investment first. The deduction is a benefit; the underlying risk is equity risk.
• “You must redeem after three years.” The lock-in sets a minimum holding period, not a maximum.
• “My whole ELSS SIP unlocks in three years.” Only the earliest instalments do; each follows its own clock.

In India: The deduction limit — currently ₹1.5 lakh a year, shared with other eligible items — and its availability under each regime are set by the Income-tax Act, 2025, which replaced the 1961 Act from 1 April 2026. Check the latest provisions or a tax professional before relying on it.