What is ELSS?

The ELSS fund stands for Equity Linked Savings Scheme. It is an instrument of a long-term capital asset for saving income tax in India. Not all ELSS plans are the same, and they do not necessarily fit in with everyone's investment objectives and risk appetite. Therefore, you must invest in a scheme that fits with your risk profile and financial goals.

What Is Tax Saving Mutual Funds?

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.

What Is the Difference Between ELSS and Tax Saving Mutual 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.

How to Save Taxes by Investing in ELSS Funds?

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.

What Are the Tax Benefits Offered by ELSS Funds?

Under section 80C of the IT Act, the tax benefit offered by investing in ELSS tax saving funds is 50% of your investment, capped at Rs 1,50,000 for a financial year.  This means that this amount reduces your taxable income and your tax liability. Any amount invested over and above the limit of Rs 1,50,000 will not attract any tax benefit.

The interest earned on fund corpus is another tax benefit. Since you invest in equity-oriented mutual funds, the expected return should be higher than fixed income products like Public Provident Fund (PPF). The interest earned on the corpus is entirely tax-free.

How to Choose the Best ELSS Fund 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.

Which Is the Best ELSS or Other Tax-Saving Investments?

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.

Here is a comparison of two of the best tax-saving investments:

Name of the ELSS Fund ELSS lock-in period 3-Year Returns 5-year returns Minimum Investment
BOI AXA Tax Advantage Fund-Growth Three years 29.85% 23.6% 500
Mirae Asset Tax Saver Fund-Growth Three years 26.61% 24.0% 500

Best ELSS Funds List

If you are planning to invest in ELSS Mutual Funds, you might have come across many financial planners or investment advisors suggesting you invest in ELSS Mutual Funds. But for most investors, it becomes a difficult job to choose the right fund. There are so many funds available in the market with different track records and schemes.

Now, there are still thousands of investors who don’t know how they select which fund to invest their hard-earned money in? Various factors should be considered while investing in ELSS Mutual Funds. Depending on your risk appetite and investment horizon, you should choose India’s best performing mutual funds.

We have listed some of India’s top-performing mutual funds based on the category and their star rating. Here is an overview of the best ELSS or 80 c mutual funds:

Name of the ELSS fund Minimum Investment Amount (INR) 3-Year Returns
Canara Robeco Equity Tax Saver fund-Growth 500 26.73%
Mirae Asset Tax Saver Fund-Growth 500 26.61%
Quant Tax Plan-Growth 500 38.17%
JM Tax Gain Fund-Growth 25.4%
Union Equity Fund Growth 24.52%
BOI AXA Tax Advantage Fund-Growth 500 29.85%