What It Means
ELSS (Equity Linked Savings Scheme) is an equity mutual fund category that qualifies for a tax deduction under Section 80C, up to ₹1.5 lakh a year. It comes with a mandatory 3-year lock-in, the shortest among the common Section 80C options like PPF or tax-saving fixed deposits.
How It Works
Every ELSS investment, whether it's a lump sum or a SIP instalment, is locked in for exactly 3 years from its own purchase date, so a running SIP has a rolling set of units unlocking on different dates rather than the whole investment freeing up at once. The 80C deduction only reduces your taxable income if you're filing under the old tax regime; under the new tax regime, ELSS still functions as an equity fund, but the tax deduction doesn't apply. Gains are taxed like any other equity fund, as long-term capital gains above ₹1.25 lakh a year taxed at 12.5%, once past the lock-in.
Warning
A common mistake is buying ELSS purely for the tax break while filing under the new tax regime, where Section 80C deductions don't apply at all. Check which regime you're actually filing under before assuming the tax saving applies to you.