ELSS or Equity Linked Savings Schemes are basically Mutual funds invested in the equity market. These funds are liable for Income Tax exemption under Section 80C of the Income Tax Act 1961. These are Open-ended, Equity-Oriented Schemes. If a person invests an amount of up to Rs. 1.5 lakh in ELSS, then he can deduct this amount from his total taxable income while calculating his tax liability.
ELSS are exposed to market risk since it is based on equity but these funds also promise higher returns as compared to other Tax Saving investment schemes like National Savings Certificates (NSC) ,Public Provident Fund (PPF), and National Pension Scheme (NPS).
Another important characteristic of ELSS is that the investments made in ELSS are locked-in for a period of three years during which this amount cannot be withdrawn. There is no such lock-in period in case of other Mutual Funds investments
Investment in ELSS can be made either in a lump-sum amount all at once or even at regular interval of time. This can be done only after signing a Systematic Investment Plan (SIP). In case of SIP, The amount that is invested in the first year can be redeemed after four years, the amount invested in the second year can be redeemed after five years and so on.