ELSS (Equity Linked Savings Scheme)
A mutual fund investing primarily in equities, eligible for Section 80C deduction, with the shortest lock-in (three years) among 80C-eligible investment options.
ELSS is a category of mutual fund that invests predominantly in equities and qualifies for Section 80C deduction, subject to the overall ₹1.5 lakh combined cap across all 80C investments. Its defining feature relative to other 80C options is a three-year lock-in, the shortest among 80C-eligible instruments like PPF, at 15 years, or tax-saving fixed deposits, at five years.
Because it's equity-based, returns aren't guaranteed and fluctuate with the market, unlike PPF or fixed deposits which offer fixed, predictable returns. Gains from ELSS units held beyond the lock-in are taxed as long-term capital gains on equity, which is a materially different, and often more favorable, tax treatment than what applies to interest from PPF or other debt instruments.
This glossary entry is for general informational purposes only and does not constitute professional tax, legal, or financial advice. Rules and rates change, so consult a qualified Chartered Accountant for advice specific to your situation.