Creating Wealth while Saving Taxes - Equity Linked Savings Scheme (ELSS)

Published On: 22-Jul-2019

One can indeed minimise their tax burden by utilising various eligible investment options to reduce the tax impact, and one of the most promising avenues therein is the Equity Linked Savings Scheme (ELSS).

Wealth Creation with ELSS

What is ELSS?

ELSS is a category in the mutual fund product basket which allows the investors to reap the multiple benefits of investing. Such funds, with a 3-year lock-in period, are mandated to invest 65% or more of the fund portfolio in equity and equity related instruments. While there are several other investment products eligible for tax deduction under Section 80C, including but not limited to, PPFs, NSC, Tax Savings FDs, etc., ELSS stands out amongst the other tax saving investment options due to its several inherent benefits. While ELSS enables for deduction of up to Rs. 1.50 lakhs on total taxable income each financial year, you can still choose to invest any higher amount in such funds to stay on the course of wealth creation and aim to fulfill your financial goals. 

Key Benefits of investing in an ELSS 

  1. Lowest Lock-in Period amongst the Tax Saving Investment Options 

ELSS carries a lock-in period of 3 years from the date of investment, which is the lowest amongst all the investment options available including bank fixed deposit (5 years), PPF (15 years from the date of account opening), National Savings Certificates (5/10 years) etc. 3 Years of lock-in period in ELSS helps the fund managers to ride upon their conviction in stock picking and it also minimises the risk of market volatility in the short period, thus providing for superior returns.

  1. Wealth Creation

Unlike most of the investment options offering fixed returns on the amounts invested, ELSS provides market linked returns to investors. Since 65% or more of the portfolio is invested in equities, the investors are equipped with the potential of higher returns considering the fact that equity markets have generated superior returns over the long term. 

The investors must also realise that such potential of higher returns are indeed a boon to your portfolio, as it results in a higher corpus over a longer period due to compounding effect. Let us check how much does Rs. 1 lakh invested each year over last 10 years has accumulated in ELSS vis-à-vis other tax saving investment options:


Tax Saving FD

National Savings Certificates


Public Provident Fund (PPF)

Senior Citizens Savings Scheme (SCSS)

ELSS Category Average

Amount invested over 10 years (Rs. 1 lakh each year on 1st Feb)

Rs. 10.0 lakh

Rs. 10.0 lakh

Rs. 10.0 lakh

Rs. 10.0 lakh

Rs.10.0 lakh

Value of the Portfolio at the end of 10 years

Rs. 15.19 lakh

Rs. 15.85 lakh

Rs. 15.85 lakh

Rs. 16.40 lakh

Rs.21.84 lakh

Returns earned by the Portfolio

Rs. 5.3 lakh

Rs. 5.9 lakh

Rs. 5.9 lakh

Rs. 6.5 lakh

Rs. 9.2 lakh

CAGR Returns over last 10 years - >






CAGR – Compounded Annualized Growth Rate 


Source: SBI, Ministry of Finance, MFI Explorer

Assuming that investments are made on 1st May of each year from May-09 to May-18 in each of the tax savings options. Data as of 30th Apr, 2019.

As such, one would not like to miss such an opportunity to create long term wealth.

  1. Preferential Tax Treatment  

As per the prevailing laws on long term capital gains from equity schemes, any investments that are held for more than 12 month will be considered as long-term capital gains taxed at 10% plus cess. As ELSS too falls in the bracket mentioned above, they enjoy the benefits of relatively lower taxes as compared to the maximum marginal rate of 30% (plus applicable surcharge and cess). Further, there is also an exemption from tax of Rs. 1 lakh towards such gains each year and which means there is possibility of no tax on gains of up to Rs. 1 lakh. 

So, with all such benefits, ELSS is an ideal choice for your tax planning and for your long-term wealth creation over the traditional investment avenues. 

Disclaimers: The information set out above is included for general information purposes only and is not exhaustive and does not constitute legal or tax advice. In view of the individual nature of the tax consequences, each investor is advised to consult his or her or their own tax consultant with respect to specific tax implications arising out of their participation in the Scheme. Income Tax benefits to the mutual fund & to the unit holder is in accordance with the prevailing tax laws/finance bill 2017. Any action taken by you on the basis of the information contained herein is not intended as on offer or solicitation for the purchase and sales of any schemes of UTI mutual Fund. Please read the full details provided in SID and SIA carefully before taking any decision.

UTI AMC Ltd is not an investment adviser, and is not purporting to provide you with investment, legal or tax advice. UTI AMC Ltd or UTI Mutual Fund (acting through UTI Trustee Company Pvt. Ltd) accepts no liability and will not be liable for any loss or damage arising directly or indirectly (including special, incidental or consequential loss or damage) from your use of this document, howsoever arising, and including any loss, damage or expense arising from, but not limited to, any defect, error, imperfection, fault, mistake or inaccuracy with this document, its contents or associated services, or due to any unavailability of the document or any part thereof or any contents or associated services.

The charts/information shared above is for illustrative purposes only and should not be construed as advise. The above is to illustrate the concept of long term investing. There is also a possibility of the expected event not happening or some other unforeseen event that may affect the future performance of asset class. Investors are requested to note that there are various factors domestic and global that can have impact on performance of the asset class mentioned in the article. Information given is available in public domain.