Equity Linked Savings Scheme or ELSS tax saving funds is a popular investment scheme for new and expert investors alike. It comes with professional fund management, low lock-in tenure, greater flexibility and can offer good returns. Besides, you can avail an ELSS tax exemption up to Rs.1.5 lakh under Section 80C of the Income Tax Act.
In this article, we compare ELSS funds with its Section 80C counterparts and understand what can make it an ideal tax saving investment.
ELSS v/s other 80C investments
Here are some factors that make ELSS a preferred option for investors over other 80C investments.
- Better returns
ELSS funds invest almost 80% in equities and equity-related instruments. Thus, they can give higher yields compared to other investment options such as Public Provident Fund (PPF) and National Savings Certificate (NSC). For individuals looking to invest in a medium- to long-term duration, ELSS can be an ideal choice. For instance, in the past, PPF generated 8% returns, whereas, ELSS fetched about 12% returns. 
- Lock-in tenure
ELSS has the shortest lock-in period of three years compared to other Section 80C investment options. For example, PPF and NSC have a mandatory lock-in period of fifteen years and five years respectively. In comparison, the shorter lock-in period from ELSS gives you the freedom to withdraw the funds earlier. However, experts suggest staying invested for a minimum of five years to earn better returns.
ELSS mutual fund investments are known to offer greater flexibility. If you are not satisfied with one ELSS fund, you can move to another. There is no multi-year deal to bind you. However, if you look at Unit-Linked Insurance Plans, they do not offer this flexibility.
- Better protection
Most mutual fund experts advise new investors to start their investment journey with ELSS funds. This can introduce them to equity exposure and let them move to other equity fund schemes gradually. Also, it can help instil financial discipline as investors cannot redeem their funds for three years. Thus, the scheme can help weather market volatility and ride on market highs.
- No maturity date
Most traditional investments such as PPF, NSC and term deposits have a fixed maturity date. For example, a PPF account matures in fifteen years. As an investor, you can extend your investment in PPF in a block of five years. For ELSS, there is no such maturity date. Even though there is a lock-in period of three years you can continue investing until you achieve your financial objectives.
If you wish to invest in mutual funds, you can consider investing in ELSS funds to generate high profits and enjoy ELSS tax benefit at the same time. If you are a new investor faced with a choice of ELSS v/s mutual fund, consider investing in ELSS as it gives you a window into the world of equity.