Top 5 ELSS Mutual Funds for Tax Saving
13 Feb 2026 9 mins Mutual Funds
Tax season often brings a wave of anxiety for many individuals, especially when it comes to finding effective ways to save on taxes while growing their investments. Equity Linked Savings Schemes (ELSS) are a unique investment avenue that not only provides tax benefits under Section 80C of the Income Tax Act but also has the potential for wealth creation over the long term. This blog post will delve into the best mutual funds available in India, focusing on the top 5 ELSS mutual funds that can help you maximize your tax-saving strategies.
Understanding ELSS Mutual Funds
Equity Linked Savings Schemes (ELSS) are mutual funds that primarily invest in equities and offer tax benefits. They are unique because they come with a mandatory lock-in period of three years, which is shorter than many other tax-saving instruments. This lock-in period not only encourages disciplined investing but also allows your investment to grow in the equity market, which historically has outperformed many other asset classes over the long term. According to the Association of Mutual Funds in India (AMFI), ELSS funds have delivered an average annual return of around 12% over the past decade, significantly outperforming traditional savings instruments like Fixed Deposits (FDs) and Public Provident Fund (PPF).
What are the Key Features of ELSS Mutual Funds?
Tax Benefits: Investments in ELSS qualify for tax deductions up to ₹1.5 lakh under Section 80C. This means that if you invest the maximum amount, you can save up to ₹46,800 in taxes if you fall under the highest tax bracket.
Long-Term Growth: Being equity-focused, these funds have the potential for significant capital appreciation over time. Historical data suggests that equity markets in India have returned around 15% compounded annually over the long run, making ELSS a compelling choice for long-term investors.
Low Entry Barrier: You can start investing in ELSS with as little as ₹500 through SIPs (Systematic Investment Plans). This low entry point makes it accessible for a wide range of investors.
Diversification: ELSS funds typically invest across various sectors, reducing risk through diversification. For instance, a well-managed ELSS fund may invest in technology, healthcare, and consumer goods sectors, thereby spreading risk and enhancing return potential.
Criteria for Selecting the Best ELSS Mutual Funds
Choosing the best ELSS mutual fund involves careful consideration of several factors. Here are key criteria to guide your selection:
Performance History
Review the fund's performance over different time frames, such as 1 year, 3 years, and 5 years. Consistent performance, especially in volatile markets, is a good indicator of a fund's management quality. For example, during the market downturn in 2020, some ELSS funds managed to outperform their peers by strategically reallocating their portfolios.
Fund Manager's Experience
The expertise and track record of the fund manager play a crucial role in the fund's performance. A seasoned manager with a history of successfully navigating market fluctuations can be a valuable asset. For instance, fund managers with over ten years of experience in equity markets tend to have a better grasp of market cycles, which reflects in the fund's performance.
Expense Ratio
Lower expense ratios can lead to higher returns for investors. Compare the expense ratios of different ELSS funds to ensure you are not paying excessively for management. A difference of even 0.5% in expense ratios can significantly impact your long-term returns due to compounding.
Investment Philosophy
Understanding the fund's investment strategy—whether it is aggressive, conservative, or balanced—will help you align your risk appetite with the fund's approach. Funds focusing on large-cap stocks tend to be less volatile, while those investing in mid and small-cap stocks might offer higher returns but come with increased risk.
Top 5 ELSS Mutual Funds for Tax Saving in India (2023)
Now that you understand the fundamentals, let’s dive into the top 5 ELSS mutual funds that are currently making waves in the Indian market:
1. SBI Long Term Equity Fund
SBI Long Term Equity Fund is one of the most popular ELSS funds in India, known for its strong performance and reliability. Managed by SBI Mutual Fund, this fund has consistently delivered impressive returns, making it a favorite among investors. It has a diversified portfolio with a blend of large-cap and mid-cap stocks.
Performance: Over the past five years, it has delivered an average annual return of around 15%, significantly outperforming many traditional investment avenues.
Expense Ratio: Approximately 1.02%, which is competitive compared to its peers.
Minimum Investment: ₹500 for SIPs, making it accessible for all investors.
2. Axis Long Term Equity Fund
Axis Long Term Equity Fund is another top contender that has gained a reputation for its robust performance and effective fund management. The fund primarily invests in large-cap and mid-cap stocks, providing a balanced growth approach. Its strategy focuses on identifying high-growth companies with strong fundamentals.
Performance: Average annual returns of about 14% over the last five years, with a strong track record during market recoveries.
Expense Ratio: Approximately 1.78%, slightly higher but justified by its performance.
Minimum Investment: ₹500 for SIPs, enabling steady investment.
3. Mirae Asset Tax Saver Fund
Mirae Asset Tax Saver Fund has been a consistent performer in the ELSS category, focusing on high-quality growth stocks. This fund is well-regarded for its disciplined investment approach and transparency. It has a strong research team that identifies potential growth stories in the Indian market.
Performance: It has shown an impressive average annual return of around 16% over the past five years, making it one of the top performers in the category.
Expense Ratio: Approximately 1.65%, which is reasonable given its performance.
Minimum Investment: ₹500 for SIPs, making it accessible to all investors.
4. Kotak Tax Saver Fund
Kotak Tax Saver Fund is known for its diversified portfolio and focus on long-term capital appreciation. It invests across various sectors to cushion against market volatility. The fund has a mix of large-cap and mid-cap stocks, which helps in balancing risk and returns.
Performance: Average returns of around 13% annually over five years, with a focus on long-term growth.
Expense Ratio: Approximately 1.10%, providing good value for money.
Minimum Investment: ₹500 for SIPs, suitable for those starting their investment journey.
5. Franklin India Tax Shield Fund
Franklin India Tax Shield Fund has a long-standing reputation in the Indian mutual fund industry. It aims for long-term capital appreciation through a diversified equity portfolio. The fund's investment philosophy focuses on quality companies with strong growth potential.
Performance: Average annual returns of about 12% over the last five years, showcasing its resilience in various market conditions.
Expense Ratio: Approximately 1.20%, which is competitive within its category.
Minimum Investment: ₹500 for SIPs, making it accessible.
How to Invest in ELSS Mutual Funds?
Investing in ELSS mutual funds can be done through various platforms, including direct investment through fund houses or via investment apps. Here’s a step-by-step guide:
Step 1: Choose the Right Fund
Based on the criteria discussed earlier, select an ELSS fund that aligns with your financial goals and risk tolerance. Make sure to read the fund's fact sheet and performance reports to understand its historical performance and investment strategy.
Step 2: Open an Account
For online investments, you need to create an account with a mutual fund distributor or a financial advisor. Ensure that you have the necessary documents ready, such as PAN card, Aadhaar, and bank details. Many platforms offer a paperless KYC process, making it easier to start investing.
Step 3: Invest
You can invest through a lump sum or SIP method. SIP allows you to invest smaller amounts regularly, making it easier to manage cash flow. For example, investing ₹1,000 monthly through SIP can lead to substantial wealth accumulation due to the power of compounding.
Step 4: Monitor Your Investment
Keep track of your fund's performance periodically. Consider rebalancing your portfolio if necessary, based on changing market conditions or your financial goals. Regular reviews can help you stay aligned with your long-term objectives and adjust your strategy as needed.
Frequently Asked Questions (FAQs)
What is the lock-in period for ELSS mutual funds?
The lock-in period for ELSS mutual funds is three years, during which you cannot redeem your investment. This feature encourages long-term investment and helps in wealth creation.
Can I invest in multiple ELSS funds?
Yes, you can invest in multiple ELSS funds to diversify your investment and potentially enhance returns. Diversification can help mitigate risks associated with market volatility.
What are the tax benefits of investing in ELSS funds?
Investments in ELSS qualify for tax deductions under Section 80C, up to ₹1.5 lakh, making them a tax-efficient investment option. This dual benefit of tax saving and potential capital appreciation makes ELSS a popular choice among investors.
Are ELSS funds risky?
Since ELSS funds primarily invest in equities, they carry market risk. However, they also offer the potential for higher returns compared to traditional tax-saving instruments. Historical performance shows that while there can be short-term volatility, the long-term returns have significantly outpaced inflation and fixed-income investments.
How to redeem ELSS mutual funds after the lock-in period?
Once the three-year lock-in period is over, you can redeem your investment through your mutual fund distributor or investment app. Some platforms allow you to set up automatic redemption plans to help manage your withdrawals efficiently.
Key Takeaways:
ELSS funds offer tax benefits under Section 80C, leading to substantial savings.
Consider performance history, fund manager experience, and expense ratios when selecting a fund to maximize your investment returns.
Investing through SIPs can make it easier to manage your cash flow and benefit from rupee cost averaging.
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Author - Abhishek Sonawane
Abhishek Sonawane, an MBA graduate from the prestigious Indian Institute of Management Visakhapatnam (IIMV), brings over ten years of experience in the finance domain. His extensive background includes various roles in financial management and strategy, providing him with a comprehensive understanding of the financial landscape. Abhishek’s expertise and dedication to financial education make him an authoritative voice in personal finance, helping readers make informed financial decisions.