I suppose equity funds also get tax rebates like ELSS but equities don’t. Is that correct?

There is a special class of equity mutual funds which is called Equity Linked Savings Schemes (ELSS). These are exactly like any equity fund but the only condition is that it entails a compulsory lock-in period of 3 years from the date of investment. Investment in an ELSS entitles the investor to 30% tax rebate (assuming you are in the highest tax bracket). This benefit is available under Section 80C of the Income Tax Act and has an overall limit of Rs.200,000. ELSS is one of the assets qualifying for Section 80C rebate and this section also includes other outlays like PPF, Employee Provident Fund, and Life insurance premium, tuition fees for children and home loan principal; apart from ELSS.

The rebate is available in the year of investment. That means if you invest Rs.20,000 in the year, then you get a rebate of Rs.6000 in the same year. That reduces your effective investment to just Rs.14,000 and that substantially enhances your return on investment when calculated on the effective investment. There is no such tax rebate available for investment in direct equities. In pure tax-saving terms, while the broad tax treatment for equity and equity funds is the same, there are surely some finer points that put equity mutual funds at an advantage over direct equities. That is something you need to bear in mind when making a choice!