Here's Why You Should Invest in Tax Saving Mutual Funds

19 Feb 2021|

2 min read |

by ICICI Securities Team

There are several financial instruments which not only allow you to save tax but also get fairly decent returns on your investment. These include Public Provident Fund, Postal Savings Schemes like NSC (National Savings Certificate), tax saving FDs, National Pension Scheme, etc. While, most of these investment instruments are largely considered as extremely secure, they require you to stay invested for periods of five to fifteen years. In comparison, ELSS funds are tax-saving mutual funds, that provide more or less the same tax benefits as the aforementioned instruments, but can offer better returns. Here’s why you should invest in tax-saving mutual funds like ELSS.

Shorter Lock in Period

Equity Linked Saving Scheme,or ELSS, has a lock in of just three years, but gives you better returns than most of these other instruments, because a large chunk of the fund is invested in equity. However, you must keep in mind that equity carries greater risk than the other instruments because they are market linked. Despite its short lock-in period, ELSS like NPS, PPF, etc, falls under Section 80C, which means you can invest 150,000 per annum and gain tax benefits.

Other benefits:

Apart from the shortest lock in period, ELSS allows you to earn regular dividend pay-outs. Moreover, you can either invest a lump sum, or through a systematic investment plan (SIP) which can be as low as Rs 500 per month, without an entry or exit load. Investing via SIP enables you to gain benefits like Rupee cost averaging and the power of compounding, wherein your profits are reinvested. If you opt for the SIP, remember that each instalment is treated as a separate investment and will be locked for three years from the date of investment. There is no maximum limit on investments, although you can claim deductions up to a maximum of Rs 1.5 Lakh per financial year.

Tax implications:

As for taxes on returns, ELSS is subject to long term capital gains tax, while NSC is subject to basic income tax. Also, NPS is partially taxable, while PPF is a completely tax-free investment instrument with no taxes levied on the investment amount, interest earned and maturity amount. However, ELSS can deliver considerably higher returns in a shorter investment tenure, as compared to all other tax-saving instruments. It is particularly suitable for people who want to save tax while getting above average returns in the long term.

Other options:

In a nutshell, tax saving mutual funds give you the benefit of tax deductions and above average returns in the longer term. Which is why any investments you make in equity should be for a longer term, so that you skip the short-term volatility. However, there is still a risk involved because it is market linked, and those who do not have an appetite for risk should stick to traditional instruments such as government bonds, Bank FDs, PPF etc which give you slightly less but with secured returns.

If you are new to the market and unfamiliar with the process, You can get in touch with us now to understand the process of investing in ELSS!

Disclaimer

ICICI Securities Limited has its registered office at ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400025, India, Tel No:- 022 - 2288 2460, 022 - 2288 2470. The non-broking products / services like iLearn and Financial Learning are not exchange traded products / services and ICICI Securities Ltd. is just acting as a distributor/ referral Agent of such products / services and all disputes with respect to the distribution activity would not have access to Exchange investor redressal or Arbitration mechanism. iLearn is not an exchange traded product/service of ICICI Securities Ltd. All disputes with respect to the activity on the platform would not have access to Exchange investor redressal or Arbitration mechanism.

ICICI Securities Ltd. is a Member of National Stock Exchange of India Ltd (Member Code :07730), BSE Ltd (Member Code :103) and Member of Multi Commodity Exchange of India Ltd. (Member Code: 56250) and having SEBI registration no. INZ000183631. ICICI Securities Ltd. is a SEBI registered with SEBI as a Research Analyst vide registration no. INH000000990. Name of the Compliance officer (broking): Mr. Atul Agrawal, Contact number: 022-69997051, E-mail address: complianceofficer@icicisecurities.com Investments in securities markets are subject to market risks, read all the related documents carefully before investing. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. ICICI Securities Ltd. and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Such representations are not indicative of future results. The securities quoted are exemplary and are not recommendatory. AMFI Regn. No.: ARN-0845. PFRDA registration numbers: POP no -05092018. ICICI Securities Ltd. acts as a Composite Corporate agent having registration number -CA0113. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Please note, Mutual Fund, Corporate Fixed Deposits, Bonds, Alternate investment funds, Tax planning, Succession planning, NPS, IPO, Investment Advisory and Loans related services are not Exchange traded products and ICICI Securities Ltd. is acting as a distributor to solicit these products. Please note, Insurance related services are not Exchange traded products and ICICI Securities Ltd. is acting as a corporate agent to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The non-broking products / services like Research, etc. are not exchange traded products / services and all disputes with respect to such activities would not have access to Exchange investor redressal or Arbitration mechanism. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.

Did you enjoy this article?

187 people liked this article. Share Feedback

Recent Articles

View all

Know Your Commodity Before You Trade: Copper

Copper is a widely used base metal known for its electrical and thermal conductivity, strength, ductility and corrosion resistance. It is used across electrical wiring, construction, machinery, power infrastructure and several industrial applications.

190 views

2 minutes

09 Oct 2026

Know your commodity before you trade - Natural Gas

Natural Gas is a widely traded energy commodity used for electricity generation, industrial activity, heating and other applications. Its prices can react sharply to weather, supply and demand, inventories, global energy markets and geopolitical developments.

354 views

1 minutes

30 Sep 2026

Know Your Commodity Before You Trade - GOLD

Gold is more than a precious metal. It is a safe-haven asset, investment avenue, central-bank reserve asset and industrial commodity. For a commodity trader, understanding both Gold's fundamentals and the contract being traded is important.

501 views

3 minutes

23 Sep 2026