Differenece between Diversified Equity Funds and ELSS Funds

Diversified equity mutual fund is an equity oriented fund which invests across different sectors (e.g. banks, IT, Oil and Gas, Automobiles, Infrastructure, Capital Goods, Pharmaceuticals etc). In other words, these funds do not restrict themselves to any sector or theme. Examples of diversified equity funds are, HDFC Equity Fund, ICICI Prudential Dynamic Plan, Reliance Growth Fund etc.

An ELSS mutual fund is a tax saving mutual fund. Investment in ELSS up to Rs. 1.5 lacs per year (subject to the overall Rs. 1.5 lacs limit) is eligible for deduction from your taxable income, under Section 80C of Income tax. In terms of fund characteristics, an ELSS fund is essentially a diversified equity fund. However, ELSS funds have a three year lock in period, which means that you cannot sell your units before 3 years from your investment date. You can invest in ELSS funds both through lump sum (one time) and Systematic Investment Plan (SIP) modes. However, you should note that if you are investing in ELSS through SIP, each instalment will be locked in for three years. Examples of ELSS are ICICI Prudential Tax Plan, Reliance Tax Saver Plan, Axis Long Term Equity fund etc.