What are pros and cons of investing in equity-linked savings schemes?

Tax deduction of up to Rs 1,50,000 a year Lock-in period of three years No provisions of premature exit LTCG up to Rs 1 lakh is tax-free LTCG over and above Rs 1 lakh is taxable at 10% Investment up to Rs 1.5 lakh can be claimed as a deduction Suitable for investors who have a relatively high risk-taking capacity Shortlist funds which have a relatively long fund history of, say, 5 years Ensure that the fund’s returns are the result of the fund manager’s expertise You may choose fund performance which matches your investment horizon Ensure that the fund's philosophy is in line with your financial goals Scrutinise the fund’s expense ratio and check whether it justifies the fund’s alpha An Equity Linked Savings Scheme or ELSS is a type of equity diversified fund which invests a majority of its assets in equity shares of companies.A tax-saving investment deductible under Section 80C of the Income Tax ActSo, the next obvious question is: How does an ELSS fund work?Well, the fund manager maintains a well-diversified portfolio by allocating resources across sectors, market capitalisation and industries. However, the fund attempts to generate enough returns which results in capital appreciation and tax benefits over the long term.Now let's talk about the key features.Unlike other funds, ELSS comes with a lock-in period of 3 years from the date of investment. Just like any other equity fund, ELSS funds are available in both dividend and growth options.From a tax standpoint, up to Rs 1 lakh of long-term capital gains from an ELSS scheme is tax-free. Under Section 80C of the Income Tax Act, your investment up to Rs 1.5 lakh can be claimed as a deduction from your gross total income in a financial year.Now, let's talk about the risk factors.As ELSS predominantly invests in equities, in addition to other asset classes, these are suitable for investors with a relatively high risk-taking capacity.