ELSS Funds – Top Tax Saving Mutual Funds & Best ELSS Tax Saver Options 2025

ELSS stands for Equity Linked Savings Schemes. These are tax-saving Mutual Funds that invest primarily in equities. You can get the dual benefit of wealth creation and tax deduction under Section 80C of the Income Tax Act. ELSS funds have one of the shortest lock-in periods of just 3 years among all tax-saving investment options.

What is ELSS or ELSS Mutual Fund

ELSS is a type of Mutual Fund that primarily invests in equity and equity-related instruments.

ELSS funds have the potential to generate higher returns over the long term, although they come with market-related risks.

Investors can choose to invest in ELSS through a lump sum or SIP, making it a flexible and efficient option for long-term wealth creation and tax planning. It is suitable for investors who are comfortable with some level of risk and have a long-term investment horizon.

How do ELSS Mutual Funds work?

ELSS mutual funds invest mainly in stocks of companies across various sectors and market capitalisations, including large-cap, mid-cap, and small-cap. The goal is to create a well-diversified portfolio that can grow wealth over the long term. Fund managers carefully pick stocks based on in-depth research and market analysis to ensure better risk-adjusted returns.

Features of an ELSS Mutual Fund:

• Dual Benefit: ELSS funds are the only type of mutual funds in the Indian market, that give you the dual benefit of a tax rebate and wealth appreciation. Under Section 80C of the Income Tax Act, 1961, one can save Rs 46,800 in a year, as tax deductions. Meanwhile, your funds are funnelled into the equity markets. Given a long enough timeline, they can earn handsome returns for the investor.

• Returns can beat inflation: One of the prime advantages of these tax-saving investments is that they have the capacity to beat the rate of inflation, unlike Fixed Deposits and funds in Savings Account, which deliver returns that consistently fail to cross the inflation rate. Being invested in ELSS funds for the long run can deliver great returns, which can beat the inflation rate by a long margin.

• Managed by Financial Experts: ELSS Mutual Funds are managed by fund managers who have an impeccable track record of managing portfolios and delivering returns, that trump benchmark performance. Their decisions are based on granular research and detailed analysis, and the pros and cons of every decision is carefully weighed before executing. All of these calculations go a long way in creating wealth for the investor.

• Shortest lock in period: Investment in these schemes can help the investor preserve and appreciate his wealth over the course of a few years.

In this blog, let’s delve more into ELSS Funds.

Best ELSS Mutual Funds to Invest in 2025

1. SBI Long-term Equity Reg-G

The SBI Long Term Equity Reg-G is an ELSS fund for those who want to invest in a high-risk fund with a 3-year lock-in period. It has no exit load and has had good performance in the last 10 years.

2. Motilal Oswal ELSS Tax saver Reg-G

With a zero exit load and a 3-year lock-in period, the Motilal Oswal ELSS Tax Saver fund is a popular option for investors who want to invest in a high-risk fund with good returns.

3. DSP ELSS Tax Saver-G

The DSP ELSS Tax Saver has generated high returns in the last 10 years. The fund has zero exit load, a lock-in period of 3 years, and a high-risk portfolio.

4. Bandhan ELSS Tax saver-G

Bandhan ELSS Tax Saver can be opted for by those investing in a high-risk ELSS fund with a 3-year lock-in period. The fund has been a very good return-generating fund in this category.

5. Quant ELSS Tax saver-G

Choose the Quant ELSS Tax Saver fund if you want to invest in an ELSS fund with one of the highest returns and no exit load. This is a good option, and it comes with a 3-year lock-in period and no exit load.

The ICICI Prudential ELSS Tax Saver Fund is an ideal option for all those who would like to save on taxes while building their wealth. This fund invests in equity and equity-related instruments, making it ideal for individuals aiming for long-term growth.

The ELSS Fund has a three-year lock-in period, which encourages disciplined investing and is suitable for long-term goals. This lock-in period allows the fund to benefit from market trends over time, potentially increasing its growth prospects. Whether you are a new investor or have some investment experience, this fund is a great way to save on taxes while focusing on capital growth. It's a perfect choice for anyone looking to achieve financial security while saving on taxes.

For people seeking Section 80C tax savings, Equity Linked Savings Schemes, or ELSS, can be the best option. Here are the five top ELSS funds:

6. ICICI Bank Prudential ELSS Tax Saver Fund

This fund diversifies across sectors for long-term capital growth. It's ideal for moderate risk-takers seeking consistent returns.

7. Quant ELSS Tax Saver Fund Direct-Growth

Known for active management, it offers high returns by investing in large- and mid-cap stocks. Suited for investors with higher risk appetite.

8. SBI Long Term Equity Fund Direct Plan Growth

This fund provides a balance of stability and growth. It’s popular among conservative investors seeking steady long-term returns.

9. Mirae Asset ELSS Tax Saver Fund Direct Growth

A strong large-cap portfolio ensures above-average returns with moderate risk, making it reliable for wealth building.

10. Parag Parikh ELSS Tax Saver Fund Direct Growth

Adopting value investing, this fund targets fundamentally strong stocks for stability and capital appreciation.

What Should You Consider Before Investing in ELSS?

Before investing in an ELSS (Tax Saving mutual funds), there are several factors that you should carefully evaluate. These factors can help you make informed decisions and maximise the benefits of this investment option:

1. Investment horizon: It is important to have a long-term perspective when considering ELSS funds. With an investment horizon of more than five years, you can manage market volatility better and enjoy higher returns. ELSS Mutual funds primarily invest in equities, which tend to perform well over extended periods.

2. Returns: ELSS funds don't offer guaranteed returns. Their performance is directly linked to the stock market. However, the longer you invest, the higher is the likelihood of potential returns. ELSS can outperform other tax saving investments in the long run.

3. Lock-in period: ELSS has a mandatory lock-in period of three years. During this time, you cannot redeem your investments. This lock-in period is shorter than other tax saving options like PPF or NSC, making ELSS a more liquid choice.

Why should you invest in ELSS Tax Saving Mutual Funds?

ELSS funds are one of the most popular tax-saving investment options under Section 80C of the Income Tax Act. One of the biggest advantages of ELSS is its potential to deliver higher returns compared to other traditional tax-saving instruments like PPF, as it primarily invests in equity markets.

Beyond tax benefits, ELSS offers the opportunity for long-term capital appreciation. Since the funds are professionally managed, investors benefit from expert decision-making and diversified portfolios that spread risk across market sectors and capitalisations. Whether you are a salaried individual, a self-employed professional, or a first-time investor, ELSS helps in building wealth while also saving on taxes.

How to Invest in ELSS Funds?

Investing in an Equity Linked Savings Scheme (ELSS) is similar to investing in any Mutual Fund (MF). The simplest approach is through an Online Investment Services Account, offering flexibility for lump-sum or Systematic Investment Plan (SIP) investments.

SIP fosters regularity and discipline, mitigating capital risk. With ELSS funds, you can start investing with as little as Rs 500. Although tax benefits are capped at Rs 1.5 lakh, there's no limit on your investment amount.

This versatility allows you to tailor your investment strategy to align with your financial goals and risk appetite, offering a user-friendly and customisable route to explore ELSS opportunities.

How to Choose the Best ELSS Mutual Fund?

Below are steps on how to choose the best ELSS mutual fund for you:

Investment Strategy: ELSS funds employ different investment strategies for returns delivery. Some focus on large-cap stocks, while others emphasise on a higher exposure to mid and small-cap stocks. First, have an idea of your approach to each fund and choose the one which best aligns with your risk appetite and objectives.

Performance Analysis: Evaluate the historical performance of ELSS funds using metrics. Plan investments with higher performance funds and stay consistent with them rather than those with low performance.

Consistency: Assess the consistency of returns over the long term by examining the rolling returns of ELSS funds. Look for funds that have consistently delivered positive returns across various market conditions. Consistency is key, especially considering the three-year lock-in period of ELSS investments.

SIP vs. Lumpsum: Decide whether to invest through a Systematic Investment Plan (SIP) or lump sum. SIPs offer the benefit of rupee cost averaging and disciplined investing, which can be advantageous in volatile markets.

Tax benefits offered by ELSS (Tax Saving Mutual Funds)

Equity Linked Savings Scheme Funds offer tax efficiency and the potential for robust returns, making them a preferred choice for tax-saving investments while building wealth. Here are the major tax benefits offered by these funds:

• Section 80C deductions: ELSS investments qualify for deductions under Section 80C, allowing investors to claim up to Rs 1.5 lakh in deductions from their taxable income.

• Maximum tax savings: Investors can reduce their taxable income and save up to Rs 46,800, depending on their tax bracket.

• Long-term capital gains tax: Post the lock-in period, investors can redeem their ELSS holdings. Any gains are liable to a 10% long-term capital gains tax. But if they fall within the limit of Rs 1 lakh, no tax is levied. It enhances ELSS as a tax-efficient wealth-building option.

Remember, ELSS Funds have a mandatory three-year lock-in period, which also helps in long-term wealth creation. Read the complete guide on Mutual Fund Taxation

Comparison of ELSS (Equity Linked Savings Scheme) with Other Tax Saving Instruments

While numerous tax saving schemes like FD, PPF and NSC exist, their returns still need to be improved. Here, ELSS shines with potentially higher returns, particularly during market upswings.

With just a three-year lock-in period, ELSS Mutual Funds emerge as the top tax saving choice. Even when considering post tax returns, ELSS outperforms other tax saving options.

ELSS Funds Popular FAQs

1. Is ELSS risk-free?

ELSS funds are not completely risk-free. They are exposed to market risks since they invest in stocks. Even while investments have a great potential for return, market conditions might cause their value to vary. When selecting ELSS funds for long-term wealth growth, investors need to take their risk tolerance into account.

2. How do you buy ELSS online at the ICICI Bank?

To purchase ELSS online through the ICICI Bank, follow these steps:

• Open or use your existing ICICI account.

• Log in, navigate to the Mutual Fund (MF) section and choose the preferred ELSS fund.

• Fill in the required details, specify the investment amount and proceed with the online purchase.

3. How do you calculate ELSS returns?

The formula to calculate ELSS returns is:

FV = C(1+r)^t

Where,

FV - Future value of investment

C - Initial investment amount

r - Expected rate of return

t - Tenure

Terms and Conditions apply.

Using an ELSS Calculator, one can easily calculate returns on their ELSS scheme.

4. Can I draw out my ELSS after three years?

Yes, there is a three-year lock-in period required for ELSS funds. You can get your money back after this time. Equity investments often outperform short-term fluctuations over the long term, and staying invested for longer periods leads to higher returns.

5. What is the exposure for ELSS funds?

With equities accounting for at least 80% of their portfolio, ELSS funds invest in equity and equity-related products. To control risk and maximise rewards, they diversify across industries and market capitalisations. Investors can profit from this exposure.

6. What does an ELSS mutual fund mean?

The meaning of an ELSS mutual fund is simple: these are tax-saving equity mutual funds that invest primarily in shares of companies across market capitalisations.

7. How much tax can I save by investing in ELSS funds?

By investing in ELSS funds, you can claim a tax deduction of up to ₹1.5 lakh in a financial year under Section 80C of the Income Tax Act (if opted for the old tax regime). This can lead to a maximum tax saving annually, depending on your income tax slab and eligibility.

8. What is the lock-in period for ELSS funds?

ELSS mutual funds come with a lock-in period of 3 years. During this period, you cannot redeem or switch your investment. After completion, you are free to withdraw or continue holding your investment for potential long-term gains.

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