The three year lock-in period enables ELSS fund managers to invest in high conviction stocks for a long period of time because of relatively less redemption pressure, says Dwaipayan Bose.

As we approach the end of FY 2022-2023/AY 2023-2024, you should ensure that you complete the tax planning for this year by March 31, 2023 for availing the tax benefits available under various sections of Income Tax Act, 1961.

If you are unable to complete tax planning before the deadline set by your company or before March 31, 2023, whichever is earlier, you may see a big TDS deduction in your March pay-slip or you may have to pay additional income tax with interest when you file your Income Tax Returns (ITR).

Tax savings under Section 80C

Tax payers can claim deductions of up to Rs 1.5 lakh every year from their gross taxable income by investing in various schemes allowed in Section 80C of Income Tax Act. You can save up to Rs 46,800 in taxes by investing in 80C schemes. Eligible investments under Section 80C are Voluntary Provident Fund (VPF), Public Provident Funds (PPF), National Savings Certificates (NSC), 5-year tax saver fixed deposits, life insurance plans (traditional and unit linked), mutual fund Equity Linked Savings Schemes (ELSS) etc. You should understand that while VPF, PPF, NSC and 5-year tax saver FDs are risk free investments, ELSS and Unit Linked Insurance Plans (ULIPs) are subject to market risks.

Equity Linked Savings Schemes

Equity Linked Savings Schemes are diversified equity mutual funds with a lock-in period of 3 years. These funds diversify across different industry sectors and market capitalisation segments. You can start investing in ELSS with Rs 100 only. There is no upper limit of investments in ELSS; however, you can claim tax deduction of up to Rs 1.5 lakh u/s 80C.

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ELSS funds are open-ended but redemptions are not allowed before completion of 3 years from date of investment. You can invest in SIP either in lump sum or through SIP. If you are investing in ELSS through SIP, then each SIP installment will be locked in for 3 years.

Wealth creation by ELSS

Many tax payers make 80C investments purely for the purpose of tax savings. However, your investments should have some objective, other than purely tax savings. It can be capital appreciation or income generation.

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