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ELSS funds primarily invest in equity and equity-related instruments, which means the investor’s money is allocated to shares of companies across different sectors and market capitalisations. Given this equity orientation, returns are subject to market performance, but the long-term growth potential is significantly higher compared to traditional tax-saving instruments such as Public Provident Fund (PPF) or National Savings Certificate (NSC). Over longer durations, ELSS has historically delivered inflation-beating returns, which is an essential component for building long-term value.

Another distinguishing feature of ELSS is the mandatory lock-in period. Unlike other open-ended mutual funds, ELSS units are locked in for three years from the date of investment. This not only encourages disciplined investing but also gives fund managers a longer horizon to manage the portfolio efficiently without redemption pressure. Investors can choose to invest either as a lump sum or via Systematic Investment Plans (SIP), which allows small, regular contributions and benefits from rupee cost averaging over time.

For individuals looking to optimise tax benefits while aiming for long-term growth, ELSS offers a well-balanced approach. It is ideal for salaried professionals, business owners, and even new investors exploring equity exposure with the added advantage of tax deduction. As with any equity-oriented product, it’s important to be mindful of the market risks, and a long-term perspective usually helps in mitigating short-term volatility. By staying invested beyond the lock-in period, one can fully harness the potential of compounding and generate meaningful outcomes aligned with future goals.