Investing in Equity Linked Savings Schemes (ELSS) is one of the most popular ways to save on taxes while aiming for wealth creation. These mutual funds are designed to help you achieve your financial goals while benefiting from tax deductions under Section 80C of the Income Tax Act. Here’s everything you need to know about ELSS funds, including the best ELSS mutual funds, tax benefits, and top-performing schemes.
Investing in Equity Linked Savings Schemes (ELSS) is one of the most popular ways to save on taxes while aiming for wealth creation. These mutual funds are designed to help you achieve your financial goals while benefiting from tax deductions under Section 80C of the Income Tax Act. Here’s everything you need to know about ELSS funds, including the best ELSS mutual funds, tax benefits, and top-performing schemes.
What Are ELSS Funds?
ELSS mutual funds are diversified equity schemes with a lock-in period of three years. They primarily invest in equity and equity-related instruments and offer dual benefits:
- Tax Saving: Invest up to ₹1.5 lakh in ELSS funds and enjoy tax deductions under Section 80C. These funds not only reduce your tax liability but also provide an opportunity for wealth creation through equity investments, combining savings with growth.
- Wealth Creation: ELSS funds invest in equities, offering the potential for higher returns compared to traditional tax-saving instruments. With market-linked growth and a 3-year lock-in period, they combine tax benefits with wealth-building opportunities for long-term financial success.
Why Choose ELSS Funds for Tax Saving?
- Short Lock-In Period: ELSS funds stand out with a lock-in of just three years, the shortest mandatory holding period among all tax-saving mutual funds. This makes them a flexible and attractive choice for investors seeking both tax benefits and liquidity.
- High Returns Potential: ELSS funds, being equity-focused, have historically outperformed traditional tax-saving instruments like PPF or FDs. With market-linked growth, they offer the potential for significantly higher returns, making them an ideal choice for long-term wealth creation and tax-saving benefits.
- Systematic Investment Option (SIP): Investors can opt for a tax-saving SIP in ELSS funds, enabling disciplined and consistent investments. This approach not only simplifies tax planning but also helps mitigate market volatility and build wealth systematically over the long term.
Top ELSS Funds in India
Here’s a list of the best ELSS funds and their performance highlights:
1. Axis Long Term Equity Fund
Axis Long Term Equity Fund is widely regarded as one of the best tax-saving mutual funds in India, particularly for investors seeking long-term capital growth. This ELSS fund focuses on building wealth through a diversified portfolio of large-cap and mid-cap stocks, making it ideal for individuals aiming for high returns over a long investment horizon. Investors benefit from both tax-saving advantages and wealth creation.
Key Features:
- Strong Portfolio: The fund is well-diversified across top-performing sectors and companies, ensuring reduced risk while aiming for higher returns.
- Consistent Performance: Axis Long Term Equity Fund consistently outperforms its benchmark, providing investors with long-term wealth growth.
- Risk Management: With a balanced approach to risk and a focus on quality stocks, the fund is designed to navigate market volatility.
- Tax Saving Benefits: As an ELSS fund, it allows tax deductions of up to ₹1.5 lakh under Section 80C.
- 3-Year Lock-In: Investors can enjoy both tax savings and growth over the fund’s mandatory 3-year lock-in period.
This fund is a strong contender among the best ELSS funds for both tax saving and wealth creation.
2. HDFC Tax Saver Fund
The HDFC Tax Saver Fund is one of the top ELSS mutual funds for investors looking for tax-saving benefits while also achieving stable returns. Known for its diversified portfolio and solid track record, this fund provides investors with the advantage of capital appreciation over the long term, while simultaneously reducing tax liabilities.
Key Features:
- 3-Year Lock-In Period: This fund comes with the typical 3-year lock-in for tax-saving mutual funds, allowing for both long-term growth and tax benefits under Section 80C.
- Stable Returns: It has consistently delivered reliable returns, making it a preferred choice among conservative investors seeking stability.
- Diversified Portfolio: The fund invests in a mix of equities and equity-related instruments, providing a balanced approach to tax-saving and wealth creation.
The HDFC Tax Saver Fund is ideal for those seeking tax saving MF options with stable and consistent growth.
3. SBI ELSS Mutual Fund
SBI ELSS Mutual Fund offers a balanced approach to tax-saving, making it an excellent choice for conservative investors. With funds like the SBI Tax Saving Fund, this mutual fund focuses on both wealth creation and tax saving, investing primarily in high-quality equity stocks to generate moderate but consistent returns.
Key Features:
- Balanced Approach: The fund balances risk with steady returns, making it suitable for conservative investors who prioritize capital preservation alongside tax-saving.
- SBI Tax Saving Fund: One of the top-performing funds in this category, with a reputation for stable, long-term growth.
- 3-Year Lock-In Period: As an ELSS fund, it comes with a 3-year lock-in, providing investors with both tax-saving and growth opportunities.
For investors seeking a balanced, tax-efficient investment, SBI ELSS Mutual Fund offers an excellent solution.
4. IDFC Tax Advantage Fund
The IDFC Tax Advantage Fund is a proven performer among tax-saving mutual funds, known for its consistent long-term returns and robust investment strategy. It aims to create wealth through a mix of equity and debt instruments, making it suitable for investors who seek a steady growth trajectory along with tax-saving benefits.
Key Features:
- Consistent Returns: The fund has a proven track record of delivering consistent returns over the years, ensuring long-term wealth creation.
- Diversified Portfolio: It invests across various sectors and stocks, reducing risk while aiming for long-term growth.
- Tax Saving Benefits: Eligible for tax deductions under Section 80C, making it a top choice for tax-saving investors.
The IDFC Tax Advantage Fund is ideal for investors looking for a reliable tax-saving MF with steady returns and long-term wealth creation.
5. Reliance Tax Saver Fund (Now Nippon India Tax Saver)
The Reliance Tax Saver Fund, now rebranded as Nippon India Tax Saver, focuses on high-growth potential sectors, making it an excellent option for aggressive investors. This ELSS fund invests primarily in equities, offering high return potential while also providing tax-saving advantages under Section 80C.
Key Features:
- Aggressive Growth Focus: The fund invests in high-growth sectors, making it ideal for investors who are willing to take higher risks for potentially higher returns.
- Tax Saving: It qualifies for tax deductions of up to ₹1.5 lakh under Section 80C, making it an attractive option for tax-conscious investors.
- 3-Year Lock-In Period: As an ELSS fund, it comes with a mandatory 3-year lock-in period, allowing for both tax savings and long-term capital growth.
For those seeking higher returns through aggressive investments, Nippon India Tax Saver Fund is a top choice among best tax-saving mutual funds.
6. DSP Tax Saver MF
The DSP Tax Saver MF is a reliable performer among tax-saving MF schemes. Known for its diversified portfolio and consistent returns, this fund focuses on investing in a combination of equity and equity-linked instruments, providing a balanced approach to wealth creation and tax savings.
Key Features:
- Diversified Portfolio: The fund has a well-diversified portfolio across various sectors, ensuring steady returns and lower risk.
- Proven Track Record: DSP Tax Saver MF has consistently delivered good returns, making it a dependable choice for tax-saving investors.
- Tax Benefits: Investments in this fund are eligible for tax deductions of up to ₹1.5 lakh under Section 80C.
With its blend of reliable performance and tax-saving benefits, the DSP Tax Saver MF remains a solid option for investors seeking long-term growth.
ELSS Tax Benefits: Why It’s a Smart Choice
- Section 80C Deductions: Investments in ELSS qualify for deductions up to ₹1.5 lakh.
- Tax-Efficient Returns: Long-term capital gains (LTCG) up to ₹1 lakh are tax-free, and gains above ₹1 lakh are taxed at 10%.
- Dividend Option: Some ELSS schemes offer dividend payouts, which can act as a passive income source during the lock-in period.
SIP in Tax Saver Funds: The Best Approach
Starting a tax-saver SIP plan in ELSS is a smart way to reduce your tax liability while spreading your investment over time. It also helps mitigate market volatility, ensuring better returns in the long run.
Popular SIP plans for tax-saving funds include:
- Axis Bank ELSS Fund
- SBI Tax Saving SIP
- HDFC ELSS Tax Saver Fund
How to Choose the Best ELSS Fund?
- Performance Track Record: Look for funds with a consistent performance history, like the Axis ELSS Tax Saver Fund or the HDFC ELSS Fund.
- Portfolio Composition: Check the fund’s sector and stock allocations for diversification and growth potential.
- Fund House Reputation: Opt for reputed fund houses like Axis, SBI, HDFC, or DSP for reliability.
Recommended ELSS Funds for 2024
Based on performance and investor preference, here are the top 10 tax-saving mutual funds to consider:
- Axis Long Term Equity Fund
- HDFC Tax Saver Fund
- SBI ELSS Fund
- DSP Tax Saver MF
- IDFC Tax Advantage Fund
- Reliance Tax Saver Fund
- Kotak Tax Saver Fund
- Mirae Asset Tax Saver Fund
- L&T Tax Advantage Fund
- ICICI Prudential Long-Term Equity Fund
ELSS vs Traditional Tax Saving Instruments
| Feature | ELSS Funds | PPF/FDs |
| Lock-in Period | 3 years | 5-15 years |
| Returns | Market-linked, potentially high | Fixed, moderate |
| Tax Saving Limit | ₹1.5 lakh (Section 80C) | ₹1.5 lakh (Section 80C) |
| Liquidity After Lock-In | High | Moderate |
Conclusion
Investing in ELSS funds is an excellent strategy to save taxes while building wealth over the long term. By choosing the best ELSS MF, you can maximize returns, enjoy tax benefits, and achieve your financial goals. Start your journey today with a tax-saving SIP in top-performing funds like the Axis Long Term Equity Fund or the HDFC ELSS Tax Saver.
