Here are the reasons why one should invest in an ELSS funds:

1. Save tax and create wealth

ELSS funds are equity mutual funds and they invest in large, mid and small companies across all sectors. Being an equity mutual fund, it has the potential to create wealth over the long term through equities. 

ELSS mutual funds provide tax deductions of up to Rs 1,50,000 a year under the provisions of Section 80C of the Income Tax Act, 1961. This helps you save up to Rs 46,800 a year in taxes. However, note that your investments are locked-in for three years from the date of investment.

2. Lock-in period

ELSS funds come with a lock-in period of three years, and there are no provisions to make a premature exit. If you compare the lock-in period for ELSS with other tax saving investment options, then ELSS scores an extra point.


Lock-in period for tax-saving investments


Investment option

Lock-in period

ELSS

3 yrs

PPF

15 years

Tax-saving FD

5 years

NSC

5 yrs and 10 yrs

ULIP

5 yrs

3. Small investment via SIPs

You can start an SIP for an ELSS mutual fund from a minimum of Rs 500. And like other mutual funds, as and when your income increases you can increase your investment amount via SIP top-up.