Best ELSS Funds: Top 10 Tax-Saving Mutual Funds in 2025
- Nimisha Panda
- Jul 13, 2025
- 8 min read
Mutual funds offered by Equity-Linked Savings Schemes (ELSS) are an excellent choice for investors looking to build wealth, receive consistent returns, and reduce their tax obligations. You can choose these funds as great tax-saving investing solutions to make money over time. In this article, we will talk about the best ELSS tax-saving mutual funds in 2025.
Table of Contents
Understanding ELSS Mutual Funds
The Equity-Linked Saving Scheme (ELSS), sometimes known as tax-saving funds, is primarily a type of mutual fund that is diversified. A portion of the remaining corpus is also invested in debt instruments, even though their minimum exposure (80%) is to equity and equity-oriented products. Because ELSS is protected by Section 80C, you are eligible to get up to Rs 1,50,000 in annual tax deductions. You can save up to Rs 46,800 in taxes throughout a fiscal year by doing this. The statutory lock-in term for these funds is three years, the shortest of any other 80C option.
How Do ELSS Mutual Funds Work
Mutual funds that invest at least 80% of their assets in stocks are known as Equity-Linked Savings Schemes (ELSS). With appropriate diversification and risk management, the fund manager and his research team will investigate debt and equity instruments and make investments on your behalf. Under Section 80C of the Income Tax Act, these funds provide tax benefits that provide deductions of up to Rs 1.5 lakh per year. They have the shortest lock-in duration of any tax-saving option, with a minimum of three years. Although ELSS funds offer the combined benefits of tax savings and perhaps large returns, their emphasis on stocks exposes them to market-related risks. Investors have two options for flexibility: Systematic Investment Plans (SIPs) and lump-sum investments.
Features of ELSS Mutual Funds
The following are some of ELSS mutual funds' most important characteristics:
By investing in stocks from a variety of industries, themes, and market sizes, these mutual fund schemes diversify their holdings.
Compared to all other 80C investments, these ELSS mutual funds have produced superior historical returns and have a very short lock-in period.
Equity and equity-related securities make up at least 80% of the fund's capital investments; the remainder is made up of debt and hybrid vehicles.
These schemes create gains that are taxed at a rate of 12.5% since they are considered long-term capital gains (LTCG).
Section 80C of the Income Tax Act mentions tax benefits on the invested capital.
They don't have a maximum investment period.
Who Should Invest in ELSS Mutual Funds
The top-performing ELSS mutual funds are advantageous for:
Any taxpayer willing to assume the risks of an equity-associated tax-saving device can use ELSS funds. This is the only three-year plan that offers tax benefits under Section 80C.
As was already noted, ELSS funds have a lock-in term that guarantees you will remain an investor for a minimum of three years. Furthermore, when you continue to observe the development potential even beyond the lock-in period, these funds typically perform far better.
Benefits of Investing in ELSS Mutual Funds
ELSS is the only investment alternative that contributes to wealth accumulation and gives tax deductions under Section 80C. If you stay invested for at least five years, you can make good profits thanks to the ELSS funds' equity exposure.
Under Section 80C of the Income Tax Act of 1961, ELSS mutual funds have the shortest lock-in period of any tax-saving investment choice, at three years. ELSS mutual funds are therefore more liquid than any other investment made under Section 80C.
The only Section 80C investment option that has the ability to provide returns that outpace inflation is ELSS mutual funds. ELSS is unique among tax-saving investing choices because of this.
All mutual funds are managed by fund managers, who are financial experts. These people have a proven track record of successfully managing portfolios and possess a number of financial qualifications. To help investors in the long run, each fund manager is supported by a group of analysts and market researchers who select just the top-performing stocks.
With a SIP of as little as Rs 100, you can begin investing in the best ELSS funds. Furthermore, there is no cap on the total amount of money that can be invested.
Top 10 ELSS Mutual Funds in 2025
If you are considering investment in ELSS mutual funds, the following table shows the list of top 10 best ones in 2025:
ELSS Fund | NAV | 5-year CAGR | Risk | Exit Load | Minimum Investment |
DSP Elss Tax Saver Fund | 134.388 | 18.29 % | Very High Risk | 0% | Rs. 500 |
HDFC ELSS Tax Saver | 1321.82 | 22.04 % | Very High Risk | 0% | Rs. 500 |
Motilal Oswal Long Term Equity Fund | 46.9177 | 18.86 % | Very High Risk | 0% | Rs. 500 |
Parag Parikh ELSS Tax Saver Fund | 30.4551 | 23.69 % | Very High Risk | 0% | Rs. 500 |
Quantum ELSS Tax Saver Fund | 117.81 | 19.3 % | Very High Risk | 0% | Rs. 500 |
ITI ELSS Tax Saver Fund | 22.5239 | 17.44 % | Very High Risk | 0% | Rs. 500 |
Taurus ELSS Tax Saver Fund | 181.43 | 16.88 % | Very High Risk | 0% | Rs. 500 |
Franklin India ELSS Tax Saver Fund | 1442.62 | 20.24 % | Very High Risk | 0% | Rs. 500 |
JM Tax Gain Fund | 47.8852 | 19.49 % | Very High Risk | 0% | Rs. 500 |
HSBC ELSS Tax saver Fund | 123.495 | 17.42 % | Very High Risk | 0% | Rs. 5000 |
How to Assess the Best ELSS Mutual Funds
Fund History: Take into account the fund houses that, over a period of, say, five to ten years, have continuously produced more Alpha. The investment approach and stock quality of a fund's portfolio are indicators of its performance.
Fund Returns: To be sure the fund has performed consistently over the years, compare its performance to that of the underlying index. You can invest in the suggested funds based on these criteria. But keep in mind that historical performance does not guarantee future profits. The actions made by fund managers and changes in the market will determine future returns.
Financial Ratios: To assess the performance of a fund, take into account metrics like Standard Deviation, Sharpe ratio, Sortino ratio, Alpha, and Beta. Higher standard deviation and beta funds are riskier than smaller deviation and beta funds. Because they provide greater returns for the extra risk you incur, pick funds with a higher Sharpe Ratio. An important part of managing the investments is the fund manager's job.
Expense Ratio: This shows how much of your investment is used for fund management. Higher take-home pay results from a lower spending ratio. Consequently, you must select the fund with a lower expense ratio if the two funds have comparable track records and asset allocations.
Factors to Consider Before Investing in ELSS Funds
Lock-in period: Like all other tax-saving investment options, ELSS mutual funds have a lock-in term. For ELSS, it is required for three years. Investors must be willing to stay for at least three years after the date of unit acquisition because there are no provisions for early withdrawals.
Risk factor: ELSS mutual funds are inevitably impacted by market movements because they are equity-oriented. Additionally, these funds are subject to all of the risks associated with equity funds. Consequently, in order to invest in ELSS mutual funds, investors must be prepared to take on these risks. You must evaluate your risk profile.
SIP and Lump Sum: Both lump sum and systematic investment plan (SIP) investments are possible with all mutual funds. Due to the ability to stagger their contribution over time, the majority of investors prefer the SIP option. A SIP allows you to invest a small amount on a regular basis. Because it offers the long-term advantage of rupee cost averaging, investing through a SIP is advised. Generally speaking, unless there is a very high possibility of making enormous profits, a lump-sum investment is not advised.
ELSS vs Other Investment Options
ELSS offers a dual-benefit in comparison to other investment options; its returns are generally higher and tax-free. This, along with a simple lock-in period of three years, is all the more reason to invest in ELSS (Tax Saving Mutual Funds) now. A few other savings schemes, such as FD, PPF, and NSC help create wealth, but the returns from them are taxable. Here is a brief overview of how ELSS is better than other popular tax-saving investments:
Investment | Returns | Lock-in Period | Tax on Returns |
6%-7% | 5 years | Yes | |
7%-8% | 5 years | Yes | |
Public Provident Fund (PPF) | 7%-8% | 15 years | No |
National Pension System (NPS) | 8%-10% | Till Retirement | Partially Taxable |
ELSS Funds | 15%-18% | 3 years | Partially Taxable |
Taxability of ELSS Mutual Funds
ELSS mutual funds must be taxed like equity funds since they belong to the same class. Dividends from these funds are a part of your income and are subject to taxation according to your tax bracket. After 2020, dividends were made tax-free for investors since the fund house was expected to pay dividend distribution tax. The possibility of experiencing short-term capital gains is eliminated due to the mandatory three-year lock-in period. Therefore, there is no tax on short-term capital gains when selling ELSS units. The long-term capital gains of up to Rs 1.25 lakh a year are also exempted from taxes. Any long-term gains over Rs 1.25 lakh are taxed at a rate of 12.5%, and there is no advantage of indexation granted.
How ELSS Can Help You Save Rs 46,800?
For those in higher income tax brackets, ELSS is a great way to save money on taxes. If you invest Rs 1.5 lakh annually in ELSS and are in the 30% income tax bracket, you can save up to Rs 46,800. However, even if you invest more, you can only receive a maximum tax deduction of Rs 1.5 lakh annually in ELSS under Section 80C. The table below illustrates how much you save in taxes if you are in the higher income tax slabs:
Description | 30% Tax Rate | 20% Tax Rate |
The maximum amount you can invest in ELSS under Section 80C | Rs 1,50,000 | Rs 1,50,000 |
Income Tax Rate | 30% | 20% |
Income Taxes Saved | Rs 45,000 | Rs 30,000 |
Health and Education Cess @4% | Rs 1,800 | Rs 1,200 |
Total Taxes Saved | Rs 46,800 | Rs 31,200 |
Risks Associated with ELSS Funds
The likelihood that investors won't be able to cash in their assets without suffering a loss in value is known as liquidity risk in mutual funds. A lock-in period of three years will apply to investments made in ELSS funds. During the lock-in period, the investor is unable to transfer or redeem their ELSS investment.
The possibility that investors would lose money due to the market's poor performance is known as market risk. Recession, political factors, market sentiment, and other factors are just a few of the many factors that could negatively impact stock market prices.
Conclusion
Equity and equity-related securities make up the majority of ELSS's assets, making it appropriate for investors with a higher risk tolerance. A great investment for people in higher income tax brackets is ELSS. Among investments made under Section 80C, ELSS has the shortest lock-in period. ELSS investments are an excellent option as they allow you to save taxes and build wealth.
Frequently Asked Questions
How to invest a lump sum in ELSS?
Depending on when and why you are investing, you can choose to make a lump sum or SIP investment in ELSS. Your only option if you want to reduce your taxes at the end of the fiscal year is to invest in a lump sum. However, you have two options if you are investing at the start of the fiscal year: a lump sum or a systematic investment plan.
How to invest in ELSS mutual funds online?
You can use a mutual fund distributor for investing in regular ELSS programs. Through an AMC, you can make an online investment in the ELSS mutual fund's direct plan. You need to register with the AMC. Provide your name, mobile number, and other personal information on the application form.
Is it possible to invest in ELSS funds without having a Demat account?
By visiting the AMC branch, you can make direct investments in mutual funds. For KYC compliance, you only need to complete the application and send your self-attested evidence of identity and address.
How to invest in mutual funds in minors’ names?
A parent or legal guardian can open a custodial account on behalf of a minor in order to invest in mutual funds in the minor's name. Up until the child turns 18, the guardian oversees the investments even if the minor is the only account holder. A minor's mutual fund account cannot be jointly owned.
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