Introduction
Tax planning is an essential part of financial management, and one of the most effective ways to save taxes while building wealth is by investing in Equity Linked Savings Scheme (ELSS) funds. ELSS mutual funds offer tax deductions under Section 80C of the Income Tax Act and have the potential to generate high returns over the long term.
In this article, we will explore what ELSS funds are, their benefits, how they work, and a list of the best ELSS funds to consider for tax saving and wealth creation.
What Are ELSS Funds?
An Equity Linked Savings Scheme (ELSS) is a type of mutual fund that invests primarily in equities and equity-related instruments. It is the only type of mutual fund eligible for tax deductions under Section 80C.
- Tax Deduction: Up to ₹1.5 lakh per financial year.
- Lock-in Period: 3 years (the shortest among tax-saving investments).
- Market-Linked Returns: Potential for higher returns compared to traditional tax-saving instruments.
- Growth & Dividend Options: Investors can choose between reinvesting profits (growth) or receiving periodic payouts (dividend).
Why Invest in ELSS Funds?
Here are some compelling reasons why ELSS is a smart choice for tax-saving investments:
✅ Tax Benefits: Investments in ELSS funds qualify for deductions up to ₹1.5 lakh under Section 80C, reducing your taxable income. ✅ Short Lock-in Period: Compared to PPF (15 years) and FD (5 years), ELSS has the shortest lock-in period of just 3 years. ✅ High Growth Potential: Since ELSS funds invest in equities, they offer better long-term capital appreciation. ✅ Systematic Investment Plan (SIP): Investors can invest through SIP mode, making it easier to manage finances. ✅ Flexibility: No maximum investment limit, and you can continue holding your investment beyond the lock-in period. ✅ Tax-Efficient Returns: After 3 years, Long-Term Capital Gains (LTCG) above ₹1 lakh are taxed at 10%, which is lower than other investment options.
How to Choose the Best ELSS Funds?
Before selecting an ELSS fund, consider the following factors:
📌 Historical Performance: Analyze past returns over 3, 5, and 10 years to check consistency. 📌 Expense Ratio: Lower expense ratios lead to better net returns. 📌 Fund Manager’s Track Record: A skilled manager ensures better performance. 📌 Portfolio Composition: Check the stock holdings and sector allocation. 📌 Risk Appetite: ELSS funds are subject to market risks, so choose funds based on your risk tolerance.
Best ELSS Funds for 2025
Here is a list of top-performing ELSS funds based on historical returns, consistency, and risk-adjusted performance.
| ELSS Fund Name | 3-Year Return | 5-Year Return | Expense Ratio | AUM (₹ Cr) |
|---|---|---|---|---|
| Axis Long Term Equity Fund | 18.5% | 16.2% | 0.83% | 26,000 |
| Mirae Asset Tax Saver Fund | 19.8% | 17.5% | 0.72% | 13,000 |
| Canara Robeco Equity Tax Saver | 18.3% | 15.9% | 0.72% | 4,500 |
| DSP Tax Saver Fund | 17.9% | 15.3% | 0.78% | 9,800 |
| Kotak Tax Saver Fund | 16.7% | 14.5% | 0.85% | 3,600 |
💡 Returns are subject to market risks and should not be the sole criteria for investment.
How to Invest in ELSS Funds?
Investing in ELSS funds is easy and can be done through:
1️⃣ Directly from AMC Websites: Visit the mutual fund house’s official website and invest online. 2️⃣ Investment Apps & Brokers: Use platforms like Zerodha, Groww, and Coin to invest easily. 3️⃣ Banks & Financial Advisors: Approach banks or mutual fund distributors for assistance. 4️⃣ SIP or Lump Sum: Choose between a Systematic Investment Plan (SIP) or a lump sum investment.
Things to Keep in Mind Before Investing in ELSS
✔️ Lock-in Period: The 3-year lock-in means you cannot withdraw before maturity. ✔️ Market Volatility: Returns are market-linked and may fluctuate. ✔️ Long-Term Growth: ELSS works best when held for 5+ years. ✔️ Tax on Gains: LTCG above ₹1 lakh is taxed at 10%. ✔️ Fund Selection: Choose funds with a good track record rather than just high recent returns.
Comparison: ELSS vs Other Tax-Saving Instruments
| Investment Option | Lock-in Period | Returns | Taxability |
| ELSS Funds | 3 years | 12-18% (market-linked) | LTCG above ₹1 lakh taxed at 10% |
| Public Provident Fund (PPF) | 15 years | 7-8% (fixed) | Tax-free |
| Fixed Deposit (Tax Saver) | 5 years | 5-7% (fixed) | Interest is taxable |
| National Pension System (NPS) | Till retirement | 8-10% | Partial tax-free |
| Unit Linked Insurance Plan (ULIP) | 5 years | 6-12% (market-linked) | Tax-free if conditions met |
💡 ELSS has the shortest lock-in period among tax-saving options and offers higher potential returns.
Conclusion
Equity Linked Savings Schemes (ELSS) are one of the best tax-saving investment options available. With high return potential, a short lock-in period, and tax benefits under Section 80C, ELSS funds are ideal for investors looking to grow wealth while reducing tax liability.
📢 Final Tip: Choose ELSS funds wisely based on your risk appetite and financial goals, and consider investing through SIPs for better rupee cost averaging.
Disclaimer: Mutual fund investments are subject to market risks. Please read the offer document carefully before investing.
