Best ELSS Mutual Funds to Invest

Equity-Linked Savings Schemes (ELSS) are special mutual funds that help you save tax under Section 80C of the Income Tax Act, and at the same time aim for good returns by investing mostly in stocks. ELSS funds have a lock-in period of 3 years, which is the shortest among all tax-saving instruments under 80C. This makes them a popular choice for long-term wealth creation and tax planning.

In this guide, we will:

Explain what ELSS funds are and how they work.
Cover the main advantages and risks.
Introduce key terms like SIP, NAV, CAGR.
Show how to pick the right ELSS fund.
List some of the best ELSS funds in India (with examples).
Give tips on investing and monitoring your ELSS.

By the end, you will understand ELSS funds well enough to choose and invest in the best one for your needs.

1. What Is an ELSS Mutual Fund?

Full Name: Equity-Linked Savings Scheme.
Tax Benefit: You get deduction up to ₹1.5 lakh under Section 80C for the amount you invest.
Lock-in Period: 3 years. This means you cannot redeem (sell) your units before completing 3 years from the date of each investment.
Investment Style: ELSS funds invest at least 80% in equity (shares of companies) and the rest in debt or money-market instruments.
Goal: Give long-term capital growth by taking advantage of stock market gains, while also giving you tax savings.

2. Why Choose ELSS Funds?

Shortest Lock-in: Among all 80C options (like PPF—15 years, NSC—5 years, tax-saving FDs—5 years), ELSS has just 3 years of lock-in.
Tax Savings Plus Growth: You save tax today and aim for market-linked returns over time.
Potential for High Returns: Since most money goes into stocks, ELSS can beat bank FDs or PPF returns over the long run.
Power of SIP: You can invest by Systematic Investment Plan (SIP), making regular small investments that add up.

3. Important Concepts and Terms

Before diving into fund lists, let us learn some basic terms:

Term	Meaning
SIP	Systematic Investment Plan. Invest a fixed amount each month. Helps in rupee cost averaging.
NAV	Net Asset Value. Price of one unit of the fund. Changes daily with fund’s market value.
CAGR	Compound Annual Growth Rate. Shows average yearly return over a period, smoothing ups and downs.
Expense Ratio	Annual fee charged by the fund house (percentage of assets). Lower is usually better.
Lock-in	Period during which you cannot redeem units. For ELSS, this is always exactly 3 years per SIP instalment.

3.1 SIP vs. Lump Sum

Lump Sum: You invest one big amount at once. Good when you have a large sum and want to enter immediately.
SIP: You invest a smaller amount every month. Benefits:
- Spreads market risk over time.
- Buys more units when NAV is low, fewer when NAV is high (rupee cost averaging).
- Fits regular monthly budgets.

For ELSS, you can choose either or both, but SIP helps smooth out market ups and downs.

4. How to Pick the Right ELSS Fund

Choosing between many ELSS schemes can be tricky. Here are key factors:

Long-Term Track Record (5+ years): Look for funds with at least 5 years of good performance. This shows they can handle different market cycles.
Past Returns (CAGR): Compare 3-year and 5-year CAGRs. Higher CAGR may indicate better growth, but also check consistency.
Expense Ratio: Lower ratio means more of your money is invested rather than spent on fees. Aim for below 1.5% if possible.
Fund Size and AUM: Very small or extremely large funds can have issues. Look for AUM between ₹500 cr and ₹10,000 cr.
Manager’s Experience: Check how long the fund manager has managed the ELSS. Stability in management is good.
Portfolio Mix: Quality of top 10 holdings, how diversified across sectors (e.g. banks, tech, FMCG).
Risk Measures: Sharpe ratio (return per unit risk), standard deviation (volatility). A higher Sharpe is better.
Consistency: A fund should not have wild swings. Check rolling returns (1-year rolling returns over past 5 years).

5. Top ELSS Funds in India (Examples)

Below is a table of some well-known ELSS schemes, their category, and returns as of April 2025. (Note: Past performance is not guarantee of future returns.)

Fund Name	3-Yr CAGR	5-Yr CAGR	Expense Ratio	AUM (₹ cr)	Lock-in
Axis Long Term Equity Fund (Direct)	16.8 %	18.5 %	1.30 %	8,500	3 yrs
Mirae Asset Tax Saver Fund (Direct)	17.2 %	19.0 %	1.20 %	6,200	3 yrs
Aditya Birla SL Tax Relief ’96 (Direct)	15.5 %	16.8 %	1.45 %	4,100	3 yrs
SBI Tax Advantage Fund (Direct)	14.9 %	17.3 %	1.50 %	10,200	3 yrs
ICICI Prudential Long Term Equity (Direct)	15.8%	17.6%	1.40%	11,000	3 yrs
Kotak Tax Saver (ELSS) (Direct)	16.2 %	18.0 %	1.35 %	5,300	3 yrs
L&T Tax Advantage Fund (Direct)	15.1 %	16.5 %	1.25 %	2,800	3 yrs
DSP Tax Saver Fund (Direct)	14.3 %	15.7 %	1.40 %	3,900	3 yrs

Note: “Direct” plans have lower expense ratios as they omit distributor commissions.

6. Fund-Wise Highlights

6.1 Axis Long Term Equity Fund

Style: Flexi-cap, invests across large, mid and small caps.
Strength: Focus on quality companies with strong growth potential and good management.
Returns: 5-Yr CAGR ~18.5 %. Consistent top performer.
Expense: 1.30% is moderate.

6.2 Mirae Asset Tax Saver Fund

Style: Multi-cap focus, good mix of sectors (banks, pharma, consumer).
Strength: Younger fund house with strong research. Good in mid-cap picks.
Returns: 5-Yr CAGR ~19.0 %. Slightly better than peers.
Expense: Low at 1.20%.

6.3 Aditya Birla SL Tax Relief ’96

Style: Large-cap bias with some mid-cap.
Strength: One of the oldest ELSS schemes, proven track record.
Returns: 5-Yr CAGR ~16.8 %.
Expense: 1.45% (higher end).

6.4 SBI Tax Advantage Fund

Style: Large-cap and select mid-cap.
Strength: Backed by SBI fund house, strong distribution.
Returns: 5-Yr CAGR ~17.3 %.
Expense: 1.50% (highest in list).

6.5 ICICI Prudential Long Term Equity

Style: Blend of large and mid-caps.
Strength: Good risk management, consistent picks.
Returns: 5-Yr CAGR ~17.6 %.
Expense: 1.40%.

7. How to Invest in ELSS Funds

Choose Fund House & Scheme: Use the criteria in Section 4 to pick 1–2 ELSS funds.
Select Plan: Always go for the Direct plan if you invest online yourself—lower fees.
One-Time or SIP: Decide if you have lumpsum money or want to spread via SIP.
- Lump Sum: Good when markets are at lower levels or you have bonus money.
- SIP: Starts from ₹500/month (in many funds), helps you invest regularly.
Online KYC & Registration: Fill e-KYC form, submit PAN, Aadhar details. Most platforms allow instant e-KYC.
Place Order: Enter amount, choose nominee, and submit. You will get units at the applicable NAV of that day or next.
Set SIP Date: Pick a convenient date (like 1st or 15th of month).
Monitor & Review: Check performance every 6 months or yearly. Keep an eye on NAV movement, churn in portfolio, and expense ratio.

8. Tax Treatment of ELSS

Section 80C Deduction: Up to ₹1.5 lakh per year. Investment in ELSS qualifies fully.
Capital Gains Tax:
- Long Term Capital Gains (LTCG): Gains from ELSS held more than 1 year are long-term. Tax-free up to ₹1 lakh per year. Above that, taxed at 10% without indexation.
- Short Term Capital Gains (STCG): If redeemed before 1 year (possible only after lock-in), gains are added to income and taxed as per slab.

Note: Lock-in is 3 years. After 3 years, each SIP instalment is free to redeem.

9. Risk and Reward

Aspect	ELSS Funds
Risk Level	High (equity risk)
Potential Returns	High (12–20% CAGR over long term)
Volatility	Medium to High (markets fluctuate)
Lock-in	3 years
Diversification	Good (20–60 stocks across sectors)
Tax Benefit	Yes (Section 80C)

You may see up-and-down swings in NAV. But if you hold at least 3–5 years after lock-in, you can ride out volatility.
The longer you stay invested (5–10 years), the better chance to earn higher returns.

10. Tips for ELSS Investors

Stay Invested Beyond Lock-in: Do not redeem immediately at 3 years; better to stay for 5+ years.
Avoid Chasing Past Winners: Past high returns don’t guarantee future outperformance.
Diversify Across 2–3 Schemes: Instead of putting all money in one fund, split between funds with different styles (e.g., one large-cap and one multi-cap).
Use SIP for Discipline: SIP builds the habit of saving and investing.
Rebalance Occasionally: If one fund grows very large in your portfolio, consider trimming and shifting to another ELSS or to debt funds for balance.
Watch Expense Ratio: Lower expense funds translate to higher net returns.
Check Manager Tenure: A new manager may change strategy—investor should feel comfortable with manager’s track record.
Stay Tax-Efficient: Claim 80C deduction each financial year by investing before March 31.

11. Common Myths about ELSS

Myth 1: “ELSS funds are only for tax saving, not for wealth creation.”
Fact: Over long term, ELSS can beat other 80C options and even beat large-cap and hybrid funds.
Myth 2: “Lock-in is bad because money is stuck.”
Fact: Requiring only 3 years lock-in actually helps you stay invested for long term and reduces early withdrawals.
Myth 3: “All ELSS are too risky.”
Fact: While ELSS invest in equity, different schemes manage risk differently—some focus on big stable companies, others on growth opportunities. You can choose as per your risk appetite.

12. Conclusion

ELSS mutual funds offer a powerful combination of tax savings and long-term wealth creation through equity markets. With just 3 years lock-in, they are more liquid than other 80C instruments. By understanding key concepts, comparing fund features, and following a disciplined approach (like SIPs), you can make ELSS a core part of your investment portfolio.

Start Early: Time in market helps compound your money.
Invest Regularly: SIPs smooth out market volatility.
Choose Wisely: Look at track record, expense ratio, and fund manager.
Hold Long: Aim for at least 5–7 years of active investment beyond lock-in.

By following these steps and selecting from the top funds listed, you can use ELSS mutual funds to save tax today and build a sizeable corpus for your future financial goals. Happy investing!