Best ELSS Funds to Invest for Tax Saving Investment

Best ELSS Funds to Invest for Tax Saving Investment

Best ELSS Funds to Invest for Tax Saving Investment: ELSS stands for “Equity Linked Saving Scheme.” Under Section 80C of 1961, Income Tax Act, a taxpayer can invest in selected mutual funds for saving their taxes. A taxpayer can save up to 1.5 lakhs rupees in a year by investing in a tax-saving mutual fund. ELSS is also called tax-saving mutual funds. Equity Linked Saving Scheme can help you in two ways:-

  1. It saves your tax up to Rs. 1,50,000 and
  2. High return on investment.

What is ELSS?

Equity Linked Saving Scheme falls under the diversified category of mutual funds, which involves risks. Its maximum revelation is towards equity and equity-oriented assets and securities, a part of the corpus is also invested in debt instruments. ELSS is referred to as tax-saving funds. You can support up to 150,000 rupees under Section 80C of the Income Tax Act with the help of ELSS investments per year. You can save up to 46800 rupees in a year by investing in tax-saving mutual funds. There are some fixed years for ELSS mutual funds maturity, or we can say that there is a lock-in period for ELSS mutual funds.

Three is the minimum three years of lock-in period in Section 80C, which is also counted among the lowest lock-in period. You can start a monthly SIP for your long-term investment goal. ELSS has the potential to return more than the traditional investment returns, like PPF and Fixed Deposit. ELSS invests 80% of the assets in equity and equity-related instruments.

Top ELSS Mutual Funds (Based on Performance Over Last Five Years)

The table is presented based on the performance over the previous five years, and we do not claim any risks or guarantee for your money while investing in any mutual funds. It is an experiment-based result. And these lists are not in any specific order.

  1. Mirae Asset Tax Saver Fund – Direct Plan-Growth
  2. Mirae Asset Tax Saver Fund
  3. BOI AXA Tax Advantage Fund – Direct Plan-Growth
  4. Canara Robeco Equity Tax Saver Fund – Direct Plan-Growth
  5. DSP Tax Saver Fund – Direct Plan-Growth
  6. IDFC Tax Advantage ELSS Fund-Growth – Direct Plan
  7. Canara Robeco Equity Tax Saver Fund
  8. Kotak Tax Saver Fund – Direct Plan-Growth
  9. Invesco India Tax Plan – Direct Plan-Growth
  10. Axis Long Term Equity Fund – Direct Plan-Growth
Funds 3 Year Performance 5 Year Performance
Mirae Asset Tax Saver Fund – Direct Plan-Growth 23.57 % 20.71 %
Mirae Asset Tax Saver Fund 21.89% 18.89 %
BOI AXA Tax Advantage Fund – Direct Plan-Growth 19.94 % 15.74 %
Canara Robeco Equity Tax Saver Fund – Direct Plan-Growth 18.94 % 19.92 %
DSP Tax Saver Fund – Direct Plan-Growth 19.37 % 17.17 %
IDFC Tax Advantage (ELSS) Fund-Growth – Direct Plan 18.16 % 14.04 %
Canara Robeco Equity Tax Saver Fund 17.89 % 18.77 %
Kotak Tax Saver Fund – Direct Plan-Growth 17.63 % 16.5 %
Invesco India Tax Plan – Direct Plan-Growth 17.46 % 15.03 %
Axis Long Term Equity Fund – Direct Plan-Growth 17.37 % 15.38 %

You can start your monthly SIP with a minimum of 1000 rupees.

How Would We Know Which is the Best ELSS Mutual Funds?

There are four parameters that you should have to consider in account for finding the best ELSS Mutual Funds:-

  1. Fund Returns
  2. Fund History
  3. Expense Ratio
  4. Financial Ratios

Fund Returns

Funds RatioDiscuss with a colleague about the consistency of that fund in which you are going to invest. “Check for the consistency of the mutual funds in past years.” Keeping in mind that the past is not evocative of future investments and their recovery. The future returns are directly proportional to the market movements and the fund manager’s decision.

Fund History

A mutual fund that performs consistently for an extended period, says 7 to 10 years, can choose those funds for investing your money. Fund history reflects the quality of stocks in its portfolio and benchmark.

Expense Ratio

How much of our invested money goes towards managing the fund is called the Expense Ratio. Lower the expense ratio higher the return; If you have the option between two mutual funds having the same assets allocation and track records, you need to invest in the fund with a low expense ratio. A low expense ratio has high return chances.

Financial Ratios

Various parameters like Sharpe ratio, Sortino ratio, Standard deviation, Alpha, and Beta analyse the mutual fund’s performance. Higher the standard deviation and beta, the higher the chances of risk than investing in a lower standard deviation and lower beta. If you invest in a mutual fund with a high standard deviation and high beta, the risk is higher. Invest in lower standard deviation and low beta values will increase the returns. For higher returns, choose a high Sharpe ratio. This will pay back high returns on your invested money. Consider higher alpha for higher returns, and a high Sortino ratio will also remit the high value of your investment. In all these parameters, as mentioned above, one more and very crucial parameter is the manager. Managers play a very vast role in ELSS mutual fund tax-saving investments.

Advantages of Investing in ELSS Mutual Tax Saving Funds

Dual Benefits of Tax Rebates and Wealth Growth

ELSS is the only option to save taxes under Section 80C of the Income Tax Act, which was imposed in 1961 with getting returns on your investment. With the help of ELSS equity exposure, you can earn excellent returns on staying for at least five years. But there is also a minimum plan of three years are available in which you can invest and get a good return value for your invested money by paying only 1000 per month (minimum). And there is no such restriction of five years if you want to invest in so many different schemes of different years, like eight years, ten years, 12 years, or 15 years, etc., which give you return respectively to their period and plans.

Minimum Lock-In Period Among Section 80C the Income Tax Act

The minimum lock-in period in the ELSS tax saving fund is just three years, which happens to be the shortest among all tax-saving investment plans under Section 80C of the Income Tax Act, 1961. Therefore, ELSS is more flexible as compared to all other traditional mutual fund plans under Section 80C.

Inflation Beating Returns Potential

ELSS tax-saving mutual funds are the only Section 80C investment option that offers you the potential to earn Inflation beating returns. ELSS is the most preferred mutual fund investment option in the market.

Taking Expert Advice

Mutual funds have to be handled by mutual fund experts or financial professionals called “fund managers.” They manage the mutual fund with super-specific details. They have an excellent track record of handling portfolios. They have a certified financial profession having various certificates and a degree in the field of finance. They have their team of market researchers and analysts, who examine the market’s current situation and revert according to the market movements about which fund you have to invest in and where not to invest. Their performance will benefit the investors in the long run.

Taxability of ELSS Tax Saving Mutual Funds

ELSS falls under the class of equity funds, so their tax is like all other equity funds. Any dividend claim by these ELSS funds is added to your income and taxed as per the income tax slab you fall under. Until Budget 2020, the profits were made tax-free in the hands of the investors as the fund house was supposed to pay dividend distribution tax.

As we know now, the ELSS tax saving mutual fund has a mandatory lock-in period of three years, so there are no benefits of short-term capital gains. Therefore, tax on short-term capital gains is non-existent for ELSS tax-saving mutual funds. Investment for 1 lakh or over 1 lakh is made tax-exempt for long terms gains. Any long-term gain for over one lakh rupees is taxed at the rate of 10% and does not provide any benefits of the indexation provided.

Risk Associated with ELSS Mutual Tax saving Fund

We are clear that ELSS is an equity-oriented fund, so they carry the same kind or level of risks as any other equity mutual fund has with it. But in ELSS, the chances of risk decrease significantly if the investor invests for five or more years. Also, three mandatory lock-in periods significantly reduce the risks.

There is no confirmation of returns when investing in ELSS tax-saving mutual funds because it is like other equity funds. However, the risk and return ratio is favorable for ELSS investors because the lock-in period helps market fluctuations and favors long-term investors.

There is a disadvantage of the lock-in period if we want to withdraw our funds. We can not do it before the maturity period, even if there is an emergency. But this also teaches us the disciple of finance and long-term investment behavior.

Key Points

  1. Always analyse the other details as many investors put their money for tax saving but did not take care of further details and the manager’s risk management strategy.
  2. Make a strategy before investment.
  3. Choose your lock-in period by analysing your situation.
  4. ELSS has the lowest lock-in period among Section 80C
  5. ELSS falls under the class of equity funds, so risks are the same as other equity funds.
  6. ELSS does not offer any fixed return scheme.
  7. ELSS invests in stock markets.
  8. You can invest via the broker, AMC, or any digital platform in SIP and Lump sum.


Investment in securities and assets are subject to market risks. Before investing in any scheme, read all the documents carefully. Always read the Risk Disclosure documents carefully. Your investment fluctuates with market fluctuations, and there is no guarantee of return of your investment or does not assure the profit. Past performance doe not indicates the future returns that may vary with market ups and downs and so your investment.

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