An Equity Linked Savings Scheme (ELSS) is an equity mutual fund that qualifies for a deduction under Section 80C of the Income Tax Act, 1961. The deduction is available only if you file your return under the old tax regime, and within the overall Section 80C limit.
The lock-in
ELSS units are locked in for three years from the date of allotment. During this period they cannot be redeemed, switched or pledged. With a SIP, each instalment gets its own allotment date, so each instalment completes its three years separately.
Risk
ELSS schemes invest mainly in equity shares, so the value of your investment can rise or fall with the stock market. The risk-o-meter of most ELSS schemes shows "Very High" risk. The tax deduction does not change this.
Tax on redemption
Gains on redemption after the lock-in are treated as long-term capital gains on equity and taxed as per the rules in force at that time.
Before you invest
- Check which tax regime you intend to choose for the year.
- Read the scheme information document and the risk-o-meter.
- Keep your statement handy as investment proof for your employer or return filing.
Tax laws change from time to time. Please speak to a qualified tax professional about your own situation.