ELSS vs SIP: Key Differences Explained
Anjali Kalan
Last Updated: 17 Aug 2026, 10:19 AM IST
- What is an ELSS?
- What is a SIP?
- 5 Major Differences Between ELSS vs SIP
- ELSS or SIP – Which Is Better?
- Conclusion
In the ELSS vs SIP comparison, it is important to understand that these are not direct alternatives. An Equity Linked Savings Scheme (ELSS) is a mutual fund scheme that invests in equities A Systematic Investment Plan (SIP) is a way of investing in mutual funds. Simply put, ELSS is the investment product and SIP is the investment mode. An ELSS SIP investment can even be made by an investor by investing in an ELSS fund through SIP installments. This article describes both concepts, their differences and when each may be appropriate.
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Frequently Asked Questions
ELSS may be considered by new investors seeking equity mutual fund exposure along with eligible tax benefits under the applicable tax regime. However, investors should understand the associated market risks, lock-in period, and investment objective before investing.
ELSS investments may qualify for a deduction of up to ₹1,50,000 in a financial year under the applicable tax provisions. This is an aggregate limit for eligible investments and is available under the old tax regime, subject to applicable conditions. From 1 April 2026, the corresponding provision is Section 123 read with Schedule XV of the Income Tax Act, 2025. The actual tax saving depends on the investor's applicable tax rate.
ELSS units are subject to capital gains tax when redeemed. Since ELSS is an equity-oriented mutual fund, eligible long-term capital gains above ₹1,25,000 in a financial year are generally taxed at 12.5%, subject to applicable conditions. Short-term capital gains on eligible equity-oriented mutual fund units are generally taxed at 20% when the applicable conditions are met.
After ELSS fund investments are made through SIPs, the units purchased first will be redeemed first when the 3-year lock-in period is up. In other words, when the investor has held the units for at least three years, they may be redeemed on a first-in, first-out basis.
Yes. You can stop future SIP instalments at any time. However, the units already purchased remain locked for three years from each investment date.
Both methods can be used for tax planning. The choice depends on your investment preference, cash flow, and financial goals rather than tax benefits alone.