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ELSS vs Equity Funds: Confusion Solved!

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March 30, 2023


What’s Inside

Are you an aspiring investor keen on including market-linked mutual funds in your portfolio? In that case, you’ll have to resolve the ELSS vs equity funds dilemma sooner than later, so you can make informed investments.

Although both investment options invest in the stock market, there are many differences between ELSS and equity funds. Equity funds are mutual funds that invest in direct equity, with portfolios consisting of the stocks of different companies based on the fund’s theme. Equity-Linked Savings Schemes (ELSS) are also equity mutual funds that offer tax benefits.

ELSS and Equity Funds: Get to Know Them Better

Let's look closely at each investment vehicle to better understand the ELSS vs equity funds comparison.

Equity Mutual Funds

Equity funds are mutual funds that invest primarily in equity stocks. Equity funds can be of different types depending on the stocks they invest in. For instance, based on the market cap of the stocks chosen, equity funds can be large-cap funds, mid-cap funds and small-cap funds. They can also be categories based on the investment tenure and the theme or sector that the stocks belong to.

The common features of equity funds are listed below:

  • Investment of at least 65% of the total assets in equity and equity-related assets
  • Debt instruments, money market instruments and other assets in the rest of the portfolio
  • It may be actively or passively managed
  • It may be close-ended or open-ended funds

Equity-Linked Savings Scheme (ELSS)

The Equity-Linked Savings Scheme (ELSS) is also an equity mutual fund. This means that these investment vehicles also invest predominantly in the equity market. The main difference is that ELSS offers tax benefits under section 80C of the Income Tax Act 1961. Investments in ELSS are eligible for deduction from the total income to the tune of Rs. 1.5 lakhs during a financial year.

Check out the other defining features of this investment option below.

  • Investment of at least 80% of the total assets in equity and equity-related assets
  • It may be close-ended or open-ended funds
  • There's a lock-in period of 3 years

ELSS vs Equity Funds: How do They Compare?


The bottom line is that both ELSS and equity funds come with their own advantages. ELSS is better if you want tax benefits. Still, equity funds are more suitable for you if you have already maximised your tax savings and want to prioritise liquidity in your investments.

Whichever kind of mutual fund you wish to invest in, you can do so commission-free with Fi Money. The app offers you an intuitive and friendly interface. You also get the freedom to invest via SIPs, with zero penalties on missed payments.

Frequently Asked Questions

1. Which is better: equity funds or ELSS?

If you compare ELSS vs equity funds, you’ll find that both options have their own benefits. ELSS may be a better option if you want tax benefits and are comfortable with a lock-in period. But regular equity funds may be more suitable if you prioritise liquidity.

2. How is ELSS different from equity funds?

ELSS is different from regular equity funds in that it comes with a lock-in period of 3 years and offers tax benefits to the investor.

3. Should I invest in ELSS or equity funds?

You may find ELSS more suitable if you want to increase your tax savings. On the other hand, if you want market-linked returns without compromising your liquidity, regular equity funds may be ideal.


Fi Money is not a bank; it offers banking services through licensed partners and investment services through epiFi Wealth Pvt. Ltd. and its partners. This post is for information only and is not professional financial advice.
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