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An Equity Linked Savings Scheme (ELSS), popularly known as a tax-savingmutual fund, is a type ofequity fundwhich qualifies for a tax deduction of up to Rs. 1.5 lakh annually under Section 80C of the Income Tax Act.

Being a market-linked instrument, an ELSS can give higher returns than conventional tax-saving instruments like fixed deposits, PPF, National Scheme Certificate (NSC), etc.

In addition to qualifying for a tax deduction of up to Rs. 1.5 lakh underSection 80Cof the Income Tax Act, the long-term capital gains earned on an ELSS are tax-free up to Rs. 1 lakh per annum.

An ELSS is the only tax-saving instrument which comes with a SIP (Systematic Investment Option). A SIP enables an investor to invest with an amount as low as Rs. 500 along with getting the benefit of power of compounding.

ELSS v/s Other Tax-Saving Investment Instruments

*5-year weighted average return (with 50% in equity and 25% each in corporate bonds and government bonds) of NPS Tier-1 schemes. Returns not guaranteed.

Also Read:Best ELSS Funds: Top 10 Tax Saving Mutual Funds.

*No. 1 in terms of loan disbursal as per industry estimates