ELSS Mutual Funds: A Best Plan for Tax-Saver Investors

Introducing ELSS Mutual Funds

Saving taxes and building wealth are the two financial goals that seem opposite each other. Either you can build wealth or you can save taxes but what if you can do both?

The ELSS Mutual Funds are the way to make it happen. It’s a different approach that focuses on investing in growth potential companies to build wealth. One of the biggest advantages that makes it the best ELSS fund is the tax-saving opportunity.

As per section 80C of Income Tax, these funds qualify for tax deductions of up to 1.5 lakh with a lock-in period of 3 years. These amazing features make this best elss funds from other funds.

In this article, you’ll explore everything about ELSS Funds. What are the key benefits and how it can help you save a big sum of tax on your investment? Make sure you don’t miss any step that could cause you to miss this amazing opportunity.

What are ELSS Mutual Funds?

The ELSS Funds are a form of mutual fund in India that focus on growing profitability while saving taxes. It primarily invests in equity and equity-related securities meaning, the fund’s focus is to invest in companies with strong market leadership and long-term growth potential.

While other funds focus on investing in one sort of investment, these ELSS use a blend of investments where fund managers spread investments on all types of companies. This increases the chances of growing wealth over time with minimal risk.

This unique approach makes it a best tax-saving mutual funds that stand out from the competition. If you’re a tax saver investor, then this opportunity you can’t refuse.

How ELSS Funds Work?

The ELSS Mutual Funds follows a simple strategy to grow wealth. It invests in companies that have strong market positions and are eager to produce long-term growth. This investment strategy is a blend of investments that combines all type of companies such as bluechip, mid-cap, small-cap etc.

This strategy of investment that uses diversification reduces the risk. Because all your money is not thrown into one sort of company, it significantly enhances the potential of growing wealth.

Just like other good companies, these ELSS funds also focus on long-term growth because it helps to produce more consistent results and make investment secure for investors.

Key Benefits of ELSS Mutual Funds

This Mutual Fund scheme stands out as a dual investment option for investment. It not only helps to create wealth, but it also provides several benefits to investors.

1. Tax-Saving

The ELSS funds known for its opportunity to save taxes on investments. It quality for tax deduction under section 80C of Income Tax, which means you can claim a deduction of up to 1.5 lakh in a financial year.

2. High Returns Potential

The ELSS Funds invest in equities that offer a high growth potential. It gives a chance to investors grow their wealth if a specific sector performs significantly.

3. Short Lock-In Period

Compared to other tax-saving options like PPF, NSC or Fixed Deposits, the ELSS Mutual Funds comes with a short lock-in period of 3 years. It makes it easier for investors to access their funds without waiting a long period of time.

4. Diversification

Investors can enhance their fund performance and grow their wealth by spreading investment into different sectors and companies. It not only grows wealth but also it reduces the risk.

5. Flexibility

Apart from a 1.5 lakh tax deduction, there is no upper limit on how much you can invest in ELSS Funds. Any time, if you think your financial conditions allow you to invest more than you can do it without any hassle.

6. Professional Fund Management

You don’t need to take more burden of investing because expert fund managers manage your funds. They invest in companies that have strong fundamentals and provide long-term benefits. Not only this, but they also adjust the funds according to market conditions and economic changes.

7. Liquidity

These funds come with a 3-years lock-in period, but if you redeem your returns after this time range, you don’t have to pay anything. That’s why it’s also called a fully liquid fund that provides investors flexibility

Tips for Choosing Best ELSS Funds

Investing in elss funds is a great way to increase wealth but choosing a best elss funds makes all the difference. Although there are so many best tax saving mutual funds but the ones that match your goals can make you the most profit.

1. Fund Past Performance

Check out how the fund is performed over the last years. This will not indicate future growth but it will give you an idea about how consistent the fund is and it has the capability to grow your investment.

2. Risk Profile

The ELSS Funds carry some sort of risk. Volatility and market changes can affect these fund’s performance so measuring the risk level would be beneficial before investing.

3. Fund Manager Experience

The fund manager plays a critical role in fund performance because his expertise and research strategies help to select the best stocks for investment that can grow in future.

4. Check the AUM

A wise way to get an idea about company’s value, checking the AUM is a wise choice. A large AUM mostly indicates that the fund is popular and well-established, but very large funds may be difficult to manage effectively.

These points you can help you to choose best elss funds for your investment but if you’re still in a confusion then you can consider these top ELSS funds.

Top 10 ELSS Funds to Invest in 2025

Here are the top 10 ELSS Funds to consider:

• Bank of India ELSS Tax Saver Fund(3-year return: 18.03%)
• DSP Tax Saver Fund(3-year return: 17.60%)
• JM ELSS Tax Saver Fund(3-year return: 17.59%)
• Bandhan ELSS Tax Saver Fund(3-year return: 16.79%)
• SBI Long Term Equity Fund(3-year return: 16.21%)
• Mirae Asset Tax Saver Fund(3-year return: 15.78%)
• Parag Parikh Tax Saver Fund(3-year return: 15.50%)
• Axis Long-Term Equity Fund(3-year return: 14.99%)
• ICICI Prudential Long Term Equity Fund(3-year return: 14.85%)
• Kotak Tax Saver Fund(3-year return: 14.72%)

The mentioned top 10 elss funds are performed well in last few years but it doesn’t decide future growth so before investing, make sure to do your research so you don’t make any mistake.

Challenges linked with ELSS Investments

The ELSS Tax Saver Funds provide a wide range of benefits but still, it’s not fully risk-free. Few challenges that investors have to face if they invest without proper research.

1. Volatility

These funds provide a higher value of investments but volatility makes a significant impact that reduces the overall performance of the fund.

2. 3-years Lock-In Period

Although, 3 years lock-in period is suitable for long-term investors but this also makes it harder for investors who want to redeem their returns for a specific reason.

3. Taxation on Capital Gains

While ELSS Funds provide tax deductions. But, in long-term gains, if the return value is above 1 lakh, the 10% capital gain tax will be applied.

4. Risk of Over-Concentration

Some ELSS Funds have significant reliance on some specific sector, which can reduce the fund performance when that specific sector passes from its downfall.

Conclusion

The ELSS Funds are a valuable option to invest if you want to leverage both things together ‘wealth creation and tax-saving’.

Even with this amazing approach, the funds are not a suitable option for everyone. If you’re looking to invest in ELSS Funds then identifying financial goals and long-term planning can benefit you to make the most of it. If you’re unsure about investing in ELSS Funds then you can try an alternative option that can grow your wealth over time.

A SIP is one of the best ways to grow wealth with minimal risk by investing a fixed amount regularly. It uses compounding to grow wealth every year with minimal risk.