Yes, ELSS is an investment that can help you create wealth as well as save tax. Some investors discover this early in their investment journey, while others may chance upon this scheme much later.

Shyam was one of the fortunate ones, who found out about ELSS quite early on. He had been a disciplined investor for 3 years now. He began investing right from the time he earned his first salary, and being a risk-friendly investor, equity-oriented mutual funds were his investments of choice. Recently, Shyam earned a well-deserved promotion that brought along with it a steep rise in his annual salary. All was well, until it was time to pay his taxes. Shyam was surprised to discover that with the huge jump in his income, he had been bumped up to a higher tax slab, and his tax liabilities had significantly increased.

Resolving to plan better and smarter for the next financial year, Shyam compared various investment options in order to find a product that combined the benefits of wealth creation as well as tax savings. He shortlisted a few, and from among them, he picked Equity Linked Savings Scheme. Since this is effectively a mutual fund scheme, Shyam was glad that he could continue to invest in his preferred investment product while also simultaneously saving tax.

If this sounds like something you also want to benefit from, read on to find out how ELSS can help you create wealth while also simultaneously acting as a tax-saving tool.

What is an Equity Linked Savings Scheme?

Equity Linked Savings Scheme (ELSS) is an investment option that can help you save tax as well as aid you in wealth creation. ELSS is essentially a specialized mutual fund scheme where your investment is parked in equity and equity-oriented financial instruments. Since it is a tax-saving instrument, ELSS carries a mandatory lock-in period of 3 years. During this lock-in period, any premature withdrawals, whether partial or complete, are not permitted.

To save taxes, you can invest in the right mutual funds on the Moneyfy app from Tata Capital. When you invest in an Equity Linked Savings Scheme, you get to enjoy several benefits. Some of these benefits are briefly explained below.

  • It carries the shortest lock-in period amongst all the other tax-saving investment options.
  • You get to enjoy a dual benefit of wealth creation and tax savings.
  • ELSS tends to give you higher returns in the long run.
  • You can make either a lump sum investment or start a Systematic Investment Plan to invest in ELSS.
  • With respect to an Equity Linked Savings Scheme, there are no charges levied for entry or for exit.

Additional Read:- Understanding Mutual Fund Terminologies

How can ELSS help with wealth creation?

The equity market has the potential to generate higher returns than many other traditional investments in the long run. ELSS funds invest more than 65% of their corpus in equity and equity-related investment options. This gives these funds the ability to let your capital appreciate significantly, thereby helping you create wealth. Furthermore, historically, ELSS has almost always generated high returns despite excessive volatility in the equity market.

While you could choose to withdraw your funds at the end of the lock-in period, it is a good idea to stay invested for longer. Thanks to the compounding effect on your investment, your ELSS can maximize wealth creation when you remain invested for a long time, say around 5 years or longer. Also, the tax benefit that an Equity Linked Savings Scheme provides will also invariably boost your returns and savings.

How can ELSS help with tax savings?

The Income Tax Act bestows ELSS with manifold tax benefits. According to section 80C of the Act, investments in ELSS up to Rs. 1.5 lakh can be claimed as deductions from your total taxable income in a financial year.

The profits that you get when you sell your ELSS investments are categorized as Long-Term Capital Gains (LTCG). The Income Tax Act also provides an additional tax exemption on such capital gains to the tune of Rs. 1 lakh in each financial year. Capital gains derived from the sale of ELSS that are over and above Rs. 1 lakh are taxed at a special rate of 10%, excluding cess and surcharge.

Additional Read:- Understanding the Power of Systematic Investment Plan


All things considered, wealth creation and tax saving are among the two main goals of investments. And an Equity Linked Savings Scheme can help you achieve both these objectives with minimal effort. Like Shyam, who smartly tapped into the benefits of an ELSS just when his career catapulted him into the high-tax bracket, you too can leverage the power of this investment option to save tax and grow your capital significantly over the long term. Simply download our Moneyfy app and make your investments in mutual funds work for you. With the in-built mutual fund scanner feature, you can compare various funds and find the right option easily.

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