NetReturns

Beginner guide · 4-minute read

ELSS, explained simply

An ELSS (equity-linked savings scheme) is an equity mutual fund that also saves tax under the old regime. Each investment is locked for 3 years, the shortest lock-in among the ₹1.5 lakh tax-saving options.

Checked on 14 Oct 2026 against SEBI's mutual fund rules and the Finance Act, 2026.

In one minute

Tax saving
Up to ₹1.5 lakh a year can be deducted from taxable income in the old regime (a limit shared with PPF, NSC and others).
Lock-in
3 years for each investment, including each SIP instalment.
Returns
Market-linked. Our planning range is 10–15% a year before tax.
Tax on gains
Equity rules: 12.5% on long-term gains above ₹1.25 lakh a year.

How it works, with real numbers

Invest ₹1,50,000 once. Under the old regime at a 30% slab, the deduction cuts that year's tax by up to ₹46,800 (30% plus cess).

After 5 years at 12.5% a year, the investment would be worth about ₹2,70,305. The gain is under ₹1.25 lakh, so there'd be no tax on it when you sell.

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Pros and cons

Good things

  • Saves tax (old regime). Up to ₹1.5 lakh a year deducted from taxable income.
  • Shortest lock-in. 3 years, against 5 for tax-saver FDs and NSC and 15 for PPF.
  • Equity growth. Can beat inflation over the long run.
  • Tax-friendly gains. 12.5% above ₹1.25 lakh a year, only when you sell.

Things to watch

  • No deduction in the new regime. It's then just an equity fund with a lock-in.
  • Locked for 3 years. Each SIP instalment is locked separately.
  • Can fall in value. Including while it's locked.
  • Shared limit. The ₹1.5 lakh covers PPF, NSC, EPF and more combined.

Is it right for you?

A good fit if you…

  • use the old regime and still have room in the ₹1.5 lakh limit
  • are happy to stay invested 5 years or more

Not a good fit if you…

  • use the new regime
  • can't accept your tax-saving investment falling in value

Mistakes to avoid

  • Investing in a rush in March. A monthly SIP through the year is calmer than one lump sum at the deadline.
  • Selling the day the lock-in ends. Three years is the minimum, not the target.

Words you'll see

ELSS
Equity-linked savings scheme: a tax-saving equity fund.
Lock-in
The time you can't sell: 3 years from each investment.
Deduction
An amount subtracted from taxable income (old regime only).
NAV
Net asset value: the price of one unit of the fund on a given day.
Units
What you own in a fund; your money buys units at the day's NAV.
Expense ratio
The fund's yearly fee, taken out of the fund before returns reach you.
Try it with your own numbersSee the tax, what you keep, and how it compares with other options.
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This guide explains how things work. It is not advice on what you should invest in. NetReturns is not SEBI-registered.

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