ELSS vs equity mutual funds: When it comes to diversifying one's investment portfolio, mutual funds come much ahead of other investment option due to their superior safety aspect and better returns. For the salaried class investors, who have very little time to monitor portfolios on a daily basis, mutual funds provide them the services of a full-time fund manager and hence, over last few years, mutual fund investments have gone northward. Government has also stepped in to boost mutual fund schemes, especially under the ELSS (Equity Linked Saving Scheme) segment by providing income tax benefits of up to Rs 1.5 lakh investment under Section 80C.

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Speaking on the ELSS mutual funds and equity mutual funds, Balwant Jain, a Mumbai-based tax and investment expert said, "ELSS mutual fund is a category of equity funds where an investor is given income tax exemption benefit by the Income Tax Department under Section 80C. Under Section 112 (A), an investor has to give Long Term Capital Gain (LTCG) tax on equity mutual fund income if the investment is for more than one year and it applies on the ELSS mutual funds too because ELSS mutual funds have a lock-in period of three years" However, Jain added that in ELSS or equity mutual funds, LTCG is applicable only on the income above Rs 1 lakh as up to Rs 1 lakh income on the equity mutual funds are tax exempted.

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On how does a mutual fund qualify for the ELSS category, Balwant Jain said, "The Mutual Fund houses apply for the ELSS category at the Finance Ministry and the scheme becomes an ELSS Mutual Fund only after the permission from the Ministry of Finance."

Talking about the returns ELSS schemes provide as well as those of equity mutual funds, Kartik Jhaveri, Manager — Wealth Management at Transcent Consultants said, "In the equity mutual funds, it is the scheme that earns money, not the investor because it has been found that people fish out their money from equity mutual funds after investing for one to two years. A mutual funds investor must keep in mind that mutual funds are for long-term investment. If an investor goes for long and invests for a period above 10 years, he or she can expect at least 12 per cent returns on his or her investment." 

On comparing the return between ELSS and other equity mutual funds category, Jhaveri said that in ELSS, one can't fish out his or her investment for the first three years as there is a three-year lock-in system. It gives some breathing space to the fund managers of the ELSS Mutual Funds and they get time to play with their wit and grit and make more money than other mutual funds category in the same period. But, for those investors, who invest for long-term, returns in ELSS mutual funds and other categories of equity mutual funds are more or less same.

Speaking on the returns one can expect from equity mutual fund investments Balwant Jain said, "It all depends upon the scheme or fund one chooses. Axis Mutual Funds, Birla Tax Relief 96, Mirae Asset Equity Fund, etc. are some of the top return giving ELSS mutual fund schemes."