Equity Linked Savings Schemes (ELSS) are a popular category of mutual funds that offer the dual benefit of tax savings and long-term wealth creation. These funds primarily invest in equities and come with a mandatory lock-in period of three years. Under Section 80C of the Income Tax Act, investments in ELSS are eligible for tax deductions of up to ₹1.5 lakh per financial year. As one of the most efficient tax-saving options available, ELSS not only helps reduce your taxable income but also provides an opportunity to participate in the growth potential of the stock market. Let’s explore what makes the best ELSS mutual funds a compelling investment choice.
The ELSS Fund full form is Equity Linked Savings Scheme, a type of mutual fund designed to offer tax-saving benefits along with investment growth. It refers to funds that invest mainly in equities and qualify for tax deductions under Section 80C, making them popular for tax planning. ELSS Funds also include a mandatory lock-in period of three years.
These funds carry a moderate to high risk due to equity exposure, making them suitable for investors with a longer investment horizon who want to save taxes while aiming for better returns.
How do ELSS Mutual Funds Work?
To understand what is ELSS mutual fund, it is important to understand how these funds work. They are designed to help investors save taxes while growing their money through equity investments. When you invest in these funds, your money is pooled with other investors’ and managed by professionals who aim to generate good returns over time. Here’s how these funds work:
1. Investors put money into ELSS Mutual Funds, which are then invested in stocks.
2. These funds primarily invest in equities across large, mid, and small-cap companies.
3. There is a mandatory lock-in period of three years before you can redeem your investment.
4. The funds are actively managed by professionals who research and select stocks to aim for better returns.
5. Investments in ELSS Funds qualify for tax deductions under Section 80C of the Income Tax Act, up to ₹1.5 lakh annually.
6. Through this process, ELSS Funds offer the potential for long-term wealth growth combined with tax savings.
Types of ELSS Mutual Funds
ELSS Funds come in different types based on how the returns are paid out and the plan structure. Knowing the ELSS Fund Types helps investors choose wisely, i.e. according to their income needs and investment goals.
1. Growth Option: In this type, profits earned by the fund are reinvested, which increases the Net Asset Value (NAV). Investors benefit from capital appreciation over time, but no regular payouts are made.
2. Dividend Option: The fund periodically distributes dividends from its profits to investors as income. This suits those looking for regular returns.
3. Dividend Reinvestment Option: Instead of receiving dividends as cash, they are automatically used to buy more units of the fund, in turn helping grow the investment over time.
4. Direct Plan: This plan allows investors to invest directly with the fund house without intermediaries, resulting in lower fees and potentially higher returns.
Features and Benefits of ELSS Mutual Funds
1. Tax Savings: One of the main features of ELSS is the tax deduction benefit under Section 80C, which lets you save up to ₹1.5 lakh annually.
2. Equity Exposure: ELSS Mutual Funds primarily invest in equities. This means, they offer higher potential for long-term returns compared to traditional tax-saving options.
3. Shortest Lock-in Period: With a lock-in of just three years, ELSS Tax Saving Mutual Funds have the shortest lock-in among tax-saving investments.
4. Professional Management: Fund managers actively select stocks to balance risk and return, aiming to grow your investment efficiently.
5. Dual Benefit: The biggest ELSS Mutual Funds benefit is the combination of tax savings and wealth creation through equity investing.
Who Should Invest in ELSS Mutual Funds?
1. First-Time Investors: ELSS is a good starting point for those new to equity investing. It offers market exposure with the added advantage of tax savings.
2. Taxpayers Looking for Deductions: Salaried individuals and professionals who want to reduce taxable income under Section 80C can benefit from investing in ELSS.
3. Long-Term Wealth Builders: If you have a long-term horizon and can stay invested for at least three years, ELSS offers potential for capital appreciation.
4. Moderate-to-High Risk Takers: Since ELSS primarily invests in equities, it suits investors comfortable with market-linked returns and moderate risk.
How to Invest in ELSS Mutual Funds?
Making your ELSS investment is simple and can be done in a few easy steps with 5paisa. Here’s how to get started: Choose the Right ELSS Fund: Begin by comparing different ELSS mutual funds based on past performance, fund manager expertise, risk profile, and investment objective. Pick a fund that aligns with your financial goals and risk appetite.
1. Complete Your KYC: To proceed with any ELSS investment, you must complete your Know Your Customer (KYC) process. You can use the 5paisa app to experience a hassle-free KYC process.
2. Decide Between SIP or Lump Sum: Choose whether you want to invest a fixed amount regularly through a Systematic Investment Plan (SIP) or invest a one-time lump sum. SIPs are ideal for building discipline, while lump sum suits those with idle funds.
3. Use a Trusted Platform Like 5paisa: You can invest in some of the best ELSS funds seamlessly through the 5paisa app, which is user-friendly, secure, and convenient. It allows you to explore fund options, track performance, and manage your investments all in one place.
4. Monitor Your Investment: Once your ELSS investment is made, regularly monitor fund performance and stay updated on market trends. The 5paisa app makes it seamless.
Factors to Consider While Investing in ELSS Mutual Funds
1. Investment Horizon: Investing in ELSS Mutual Funds is best suited for individuals with a medium to long-term outlook. Although the mandatory lock-in period is three years, staying invested for at least 5–7 years can help you ride out market volatility and benefit from compounding.
2. Returns Are Market-Linked: ELSS funds invest in equities, which means returns depend on market performance. Unlike fixed-return instruments, ELSS investments do not guarantee returns. However, over the long term, they often outperform traditional tax-saving options.
3. Lock-in Period: Every ELSS investment comes with a fixed lock-in of three years. You cannot redeem or switch your units before this period ends. This encourages long-term investing and discipline, but also limits liquidity.
4. Risk Profile: Since ELSS funds invest in equity markets, they carry moderate to high risk. If you're not comfortable with short-term market fluctuations, consider your risk appetite before investing in ELSS mutual funds.
Tax Rules For ELSS Mutual Funds
1. Tax Deduction Under Section 80C: One of the primary ELSS tax benefits is that investments of up to ₹1.5 lakh in a financial year are eligible for deduction under Section 80C of the Income Tax Act. This helps reduce your overall taxable income.
Lock-in Period and Tax Efficiency: ELSS comes with a 3-year lock-in, which not only promotes disciplined investing but also qualifies it as a long-term investment for favourable tax treatment.
Long-Term Capital Gains (LTCG) Tax: Any gains from ELSS investments are treated as long-term capital gains. Gains up to ₹1.25 lakh in a financial year are tax-free. Gains above ₹1.25 lakh are taxed at 12.5% without indexation benefits.
Risks Involved When Investing in ELSS Funds
1. Market Risk: ELSS mutual funds invest primarily in equities, making them sensitive to market volatility. Returns are not guaranteed and can vary based on market movements.
2. Liquidity Risk: ELSS comes with a mandatory 3-year lock-in period. During this time, investors cannot redeem or switch their units, which limits liquidity in the short term.
3. Fund Manager Risk: ELSS funds are actively managed, and their performance can vary based on the fund manager's decisions. A poorly managed fund may underperform even if markets are doing well.
4. Concentration Risk: Some ELSS funds may have a higher allocation to certain sectors or market caps. This lack of diversification can increase vulnerability to sector-specific downturns.
Comparison of ELSS Funds with Other Tax Saving Instruments
Motilal Oswal ELSS Tax Saver Fund-Dir Growth is an ELSS scheme that was launched on 26-12-2014 and is currently under the management of our experienced fund manager Ajay Khandelwal. With an impressive AUM of ₹4,784 Crores, this scheme's latest NAV is ₹66.4245 as of 8/13/2026 12:00:00 AM.
Motilal Oswal ELSS Tax Saver Fund-Dir Growth scheme has delivered a return performance of 15.57% in the last 1 year, 23.68% in the last 3 years, and an since its launch. With a minimum SIP investment of just ₹ 500, this scheme offers a great investment opportunity for those looking to invest in ELSS.
SBI Long Term Advantage Fund - Series V -Dir Growth is an ELSS scheme that was launched on 21-12-2017 and is currently under the management of our experienced fund manager Nidhi Chawla. With an impressive AUM of ₹379 Crores, this scheme's latest NAV is ₹34.1673 as of 8/13/2026 12:00:00 AM.
SBI Long Term Advantage Fund - Series V -Dir Growth scheme has delivered a return performance of 8.00% in the last 1 year, 21.79% in the last 3 years, and an since its launch. With a minimum SIP investment of just -, this scheme offers a great investment opportunity for those looking to invest in ELSS.
ITI ELSS Tax Saver Fund - Direct Growth is an ELSS scheme that was launched on 15-07-2019 and is currently under the management of our experienced fund manager Alok Ranjan. With an impressive AUM of ₹455 Crores, this scheme's latest NAV is ₹29.2963 as of 8/13/2026 12:00:00 AM.
ITI ELSS Tax Saver Fund - Direct Growth scheme has delivered a return performance of 11.22% in the last 1 year, 19.37% in the last 3 years, and an since its launch. With a minimum SIP investment of just ₹ 500, this scheme offers a great investment opportunity for those looking to invest in ELSS.
WhiteOak Capital ELSS Tax Saver Fund - Direct Growth is an ELSS scheme that was launched on 16-08-2022 and is currently under the management of our experienced fund manager Ramesh Mantri. With an impressive AUM of ₹494 Crores, this scheme's latest NAV is ₹19.551 as of 8/13/2026 12:00:00 AM.
WhiteOak Capital ELSS Tax Saver Fund - Direct Growth scheme has delivered a return performance of 8.81% in the last 1 year, 18.51% in the last 3 years, and an since its launch. With a minimum SIP investment of just ₹ 500, this scheme offers a great investment opportunity for those looking to invest in ELSS.
JM ELSS Tax Saver Fund - Direct Growth is an ELSS scheme that was launched on 01-01-2013 and is currently under the management of our experienced fund manager Deepak Chandra Gupta. With an impressive AUM of ₹242 Crores, this scheme's latest NAV is ₹61.5516 as of 8/13/2026 12:00:00 AM.
JM ELSS Tax Saver Fund - Direct Growth scheme has delivered a return performance of 14.47% in the last 1 year, 18.36% in the last 3 years, and an since its launch. With a minimum SIP investment of just ₹ 500, this scheme offers a great investment opportunity for those looking to invest in ELSS.
HSBC ELSS Tax Saver Fund - Direct Growth is an ELSS scheme that was launched on 01-01-2013 and is currently under the management of our experienced fund manager Abhishek Gupta. With an impressive AUM of ₹4,115 Crores, this scheme's latest NAV is ₹158.0094 as of 8/13/2026 12:00:00 AM.
HSBC ELSS Tax Saver Fund - Direct Growth scheme has delivered a return performance of 10.70% in the last 1 year, 18.34% in the last 3 years, and an since its launch. With a minimum SIP investment of just ₹ 500, this scheme offers a great investment opportunity for those looking to invest in ELSS.
Baroda BNP Paribas ELSS Tax Saver Fund - Direct Growth is an ELSS scheme that was launched on 01-01-2013 and is currently under the management of our experienced fund manager Silky Jain. With an impressive AUM of ₹917 Crores, this scheme's latest NAV is ₹117.6468 as of 8/13/2026 12:00:00 AM.
Baroda BNP Paribas ELSS Tax Saver Fund - Direct Growth scheme has delivered a return performance of 11.60% in the last 1 year, 17.82% in the last 3 years, and an since its launch. With a minimum SIP investment of just ₹ 500, this scheme offers a great investment opportunity for those looking to invest in ELSS.
Quant ELSS Tax Saver Fund - Direct Growth is an ELSS scheme that was launched on 01-01-2013 and is currently under the management of our experienced fund manager Sandeep Tandon. With an impressive AUM of ₹13,382 Crores, this scheme's latest NAV is ₹466.5347 as of 8/13/2026 12:00:00 AM.
Quant ELSS Tax Saver Fund - Direct Growth scheme has delivered a return performance of 17.76% in the last 1 year, 17.06% in the last 3 years, and an since its launch. With a minimum SIP investment of just ₹ 500, this scheme offers a great investment opportunity for those looking to invest in ELSS.
Sundaram LT Tax Advantage Fund-Sr.IV-Dir Growth is an ELSS scheme that was launched on 27-03-2018 and is currently under the management of our experienced fund manager Rohit Seksaria. With an impressive AUM of ₹23 Crores, this scheme's latest NAV is ₹38.5328 as of 8/13/2026 12:00:00 AM.
Sundaram LT Tax Advantage Fund-Sr.IV-Dir Growth scheme has delivered a return performance of 16.23% in the last 1 year, 16.84% in the last 3 years, and an since its launch. With a minimum SIP investment of just -, this scheme offers a great investment opportunity for those looking to invest in ELSS.
Bank of India Midcap Tax Fund - Series 1 - Direct Growth is an ELSS scheme that was launched on 10-11-2017 and is currently under the management of our experienced fund manager Nilesh Jethani. With an impressive AUM of ₹65 Crores, this scheme's latest NAV is ₹31.26 as of 8/13/2026 12:00:00 AM.
Bank of India Midcap Tax Fund - Series 1 - Direct Growth scheme has delivered a return performance of 14.83% in the last 1 year, 16.59% in the last 3 years, and an since its launch. With a minimum SIP investment of just -, this scheme offers a great investment opportunity for those looking to invest in ELSS.
ELSS funds provide up to INR 1,50,000 tax deductions under Section 80C of the Income Tax Act, 1961. It helps you save up to INR 46,000 a year in taxes.
ELSS funds are appropriate for taxpayers prepared to take the risk of an equity-oriented tax-saving device. Because they have a consistent source of income and must make tax-saving investments every year, ELSS funds are better suited for the salaried class.
If you are a young taxpayer, you can take advantage of the dual benefit of investing in ELSS, namely the tax deduction under Section 80C and the long-term growth potential of equities, by investing in ELSS every year. While senior taxpayers can invest in ELSS to take advantage of the tax benefits, the equity risk inherent in ELSS necessitates a longer investment horizon, which they may lack.
ELSS funds have a 3-year lock-in period. If you invest now, you cannot withdraw your money until three years have passed if you made a lump sum investment.
Each SIP payment is also subject to the lock-in term.
You must wait until the final SIP instalment has finished in three years if you wish to withdraw the entire money invested over 12 months.
Some factors that need to be considered before investing in ELSS Funds are investment horizon, returns, lock-in term, and the annual tax exemption limit.
Tax saving mutual funds, also known as ELSS funds, are mutual funds that help save income tax on the profit gained from selling units of mutual funds at the end of a particular year or after a specific period. The government has announced various incentives for investors to save taxes on the capital gain from selling mutual funds units. Commonly people invest their money in mutual funds schemes since it helps save taxes on capital gains made every year. There are three types of mutual fund schemes eligible for saving taxes: equity, debt, and hybrid oriented funds.
Several types of mutual funds are available in India, including dividend funds, index funds, growth funds, etc. ELSS or Equity Linked Savings Scheme is one of the investment options offered by mutual fund companies in India.
The main difference between tax saving mutual funds and equity-linked savings schemes is that the former is a must for income tax purposes while the latter can be a part of a long-term financial plan.
Equity Linked Savings Scheme (ELSS) works like an insurance scheme. The invested money goes into a non-linked insurance fund, and the interest earned on this investment is tax-free. This interest is credited at the end of every year and is called ‘equated monthly instalment’. There is no upper or lower limit for investment in ELSS lock in period. And every individual is eligible to purchase these funds.
Investors can save on taxes by investing in ELSS funds if they do not claim deductions on their annual income return. ELSS funds are so-called because they provide an exemption from capital gains tax on investments made through them, unlike other mutual funds where long term capital gains are taxed at 15%. So these funds are also called funds that allow ‘tax-free’ growth over three years or more depending upon the fund you choose to invest in.
There are many ELSS funds available in the market today. But choosing the best ELSS fund with the ELSS tax benefit is not an easy task. You need to do your homework and select the best ELSS fund for you. Here is a guide to help you find the best ELSS fund for you:
Review the past performance of over 1, 3 and 5 years before investing.
Choose a fund with consistently higher returns and lower volatility. The riskier the fund, the more volatile its returns are likely to be.
The fund should be managed by an experienced fund manager who has a good track record of consistently beating benchmark returns. The fund should have a low expense ratio. It should have standard tracking error and high liquidity.
Choose a diversified ELSS fund with a long track record of consistent performance. Always check the past performance of the scheme before investing in it.
There are many tax saving mutual funds in India where you can invest to save taxes. But which is the best ELSS or other tax-saving mutual fund option in India? Well, there is no one-size-fits-all answer. It depends on a lot of factors such as your investment horizon, risk appetite and so on.
There are many tax-saving investment options under Section 80C of the Income Tax Act. The most popular ones are ELSS, NPS, PPF, Mutual Funds, Sukanya Samriddhi Account and Fixed Deposits. Tax saving mutual funds are a great way to save for retirement and other financial goals.
These funds offer significant tax breaks and provide liquidity, two of the main benefits of investing in mutual funds. However, when choosing a tax-saving mutual fund, your best bets are equity-oriented balanced funds with large fund sizes.
Tax saving mutual funds are a great way to save on taxes. They provide a way to invest in equity and debt instruments to earn you good returns while reducing your tax liability. We have tried to do a comprehensive analysis of all the popular ELSS funds in India and help you pick the best ELSS fund for you.
Motilal Oswal ELSS Tax Saver Fund-Dir Growth
SBI Long Term Advantage Fund - Series V -Dir Growth
ITI ELSS Tax Saver Fund - Direct Growth
WhiteOak Capital ELSS Tax Saver Fund - Direct Growth
JM ELSS Tax Saver Fund - Direct Growth
HSBC ELSS Tax Saver Fund - Direct Growth
Baroda BNP Paribas ELSS Tax Saver Fund - Direct Growth
Quant ELSS Tax Saver Fund - Direct Growth
Sundaram LT Tax Advantage Fund-Sr.IV-Dir Growth
Bank of India Midcap Tax Fund - Series 1 - Direct Growth