Last Updated on Jul 30, 2024 by Anjali Chourasiya
How do you like it when you can save tax on the gains you earn from mutual funds? Yes, you read it right. Equity Linked Saving Schemes (ELSS) is a type of mutual fund that comes with tax benefits. They have a lock-in period of 3-yr, with no provisions to make a premature exit. Let’s explore more about them, their features, factors to consider before investing, and the best ELSS mutual funds based on various fundamental factors.
Table of Contents
Best ELSS mutual funds – Based on low expense ratio
| Name | AUM (Rs. in cr.) | Expense Ratio (%) | Volatility (%) | 3Y CAGR (%) |
| Navi ELSS Tax Saver Nifty 50 Index Fund | 14.42 | 0.10 | 8.24 | 5.05 |
| 360 ONE ELSS Nifty 50 Tax Saver Index Fund | 44.25 | 0.27 | 9.40 | 4.95 |
| Navi ELSS Tax Saver Fund | 62.16 | 0.39 | 9.80 | 7.28 |
Note: The data is from 28th September 2023. To get this list of ELSS funds based on low expense ratio in India on the Tickertape Mutual Fund Screener, apply the below-mentioned filter.
- Category > Equity > Equity Linked Savings Scheme (ELSS)
- Plan: Growth
- Expense Ratio (%): Set to Low – Sort from lowest to highest
Top ELSS mutual fund – Based on a high 3-yr CAGR
| Name | AUM (Rs. in cr.) | Expense Ratio (%) | Volatility (%) | 3Y CAGR (%) |
| Sundaram LT Micro Cap Tax Adv Fund-Sr VI | 38.41 | 1.16 | 10.91 | 46.43 |
| Sundaram LT Tax Adv Fund-Sr III | 34.11 | 1.18 | 10.52 | 45.33 |
| Sundaram LT Tax Adv Fund-Sr IV | 22.59 | 1.18 | 10.44 | 45.13 |
| Sundaram LT Micro Cap Tax Adv Fund-Sr IV | 38.41 | 1.32 | 11.15 | 44.85 |
| Sundaram LT Micro Cap Tax Adv Fund-Sr V | 32.51 | 1.19 | 10.88 | 44.48 |
| Sundaram LT Micro Cap Tax Adv Fund-Sr III | 78.41 | 1.24 | 11.08 | 44.30 |
| Quant Tax Plan | 4,433.80 | 0.76 | 13.39 | 37.38 |
| SBI LT Advantage Fund-IV | 183.93 | 0.00 | 8.88 | 35.89 |
| Bandhan Tax Advt(ELSS) Fund | 5,073.13 | 0.63 | 9.66 | 32.93 |
| SBI LT Advantage Fund-III | 60.17 | 0.00 | 9.84 | 31.04 |
Note: The data is from 28th September 2023. To get this list of ELSS funds based on low expense ratio in India on the Tickertape Mutual Fund Screener, apply the below-mentioned filter.
- Category > Equity > Equity Linked Savings Scheme (ELSS)
- Plan: Growth
- CAGR 3Y (%): Set to High – Sort from highest to lowest
Best ELSS funds in India – Based on a high 3-yr average rolling returns
| Name | AUM (Rs. in cr.) | Expense Ratio (%) | Volatility (%) | 3Y Avg Rolling Returns (%) |
| Quant Tax Plan | 4,433.80 | 0.76 | 13.39 | 46.60 |
| Sundaram LT Micro Cap Tax Adv Fund-Sr VI | 38.41 | 1.16 | 10.91 | 44.64 |
| Sundaram LT Micro Cap Tax Adv Fund-Sr V | 32.51 | 1.19 | 10.88 | 43.23 |
| Sundaram LT Micro Cap Tax Adv Fund-Sr IV | 38.41 | 1.32 | 11.15 | 42.74 |
| Sundaram LT Tax Adv Fund-Sr III | 34.11 | 1.18 | 10.52 | 41.99 |
| Sundaram LT Micro Cap Tax Adv Fund-Sr III | 78.41 | 1.24 | 11.08 | 41.92 |
| Sundaram LT Tax Adv Fund-Sr IV | 22.59 | 1.18 | 10.44 | 40.86 |
| SBI LT Advantage Fund-IV | 183.93 | 0.00 | 8.88 | 38.97 |
| SBI Tax Advantage Fund-III | 31.69 | 0.00 | 8.68 | 36.01 |
| Bandhan Tax Advt(ELSS) Fund | 5,073.13 | 0.63 | 9.66 | 33.30 |
Note: The data is from 28th September 2023. To get this list of ELSS funds based on low expense ratio in India on the Tickertape Mutual Fund Screener, apply the below-mentioned filter.
- Category > Equity > Equity Linked Savings Scheme (ELSS)
- Plan: Growth
- 3Y Avg Rolling Returns (%): Set to High – Sort from highest to lowest
Less volatile ELSS funds in India
| Name | AUM (Rs. in cr.) | Expense Ratio (%) | Volatility (%) |
| Samco ELSS Tax Saver Fund | 57.54 | 0.89 | 6.38 |
| Parag Parikh Tax Saver Fund | 1,932.37 | 0.77 | 7.73 |
| Navi ELSS Tax Saver Nifty 50 Index Fund | 14.42 | 0.10 | 8.24 |
| SBI Tax Advantage Fund-III | 31.69 | 0.00 | 8.68 |
| Taurus Tax Shield Fund | 65.33 | 1.78 | 8.68 |
| NJ ELSS Tax Saver Scheme | 118.75 | 0.61 | 8.75 |
| SBI LT Advantage Fund-IV | 183.93 | 0.00 | 8.88 |
| Aditya Birla SL ELSS Tax Relief 96 | 14,252.70 | 0.93 | 8.90 |
| WOC Tax Saver Fund | 86.53 | 0.64 | 8.93 |
| Union Tax Saver (ELSS) Fund | 689.69 | 1.47 | 8.98 |
Note: The data is from 28th September 2023. To get this list of ELSS funds based on low expense ratio in India on the Tickertape Mutual Fund Screener, apply the below-mentioned filter.
- Category > Equity > Equity Linked Savings Scheme (ELSS)
- Plan: Growth
- Volatility (%): Set to Low – Sort from lowest to highest
What are ELSS mutual funds?
An Equity-Linked Savings Scheme (ELSS) is the only type of mutual fund that offers tax benefits. They are diversified equity funds. They invest in equity and equity-linked instruments. ELSS has a mandatory lock-in period of 3-yr, after which it becomes an open-ended scheme.
Section 80C of the Income Tax Act, 1961 allows you to claim a tax deduction on the amount that you invest in ELSS. The maximum deduction you can claim in this regard is Rs 1,50,000 per year, subject to the overall permissible limit of the section.
Features of ELSS mutual funds
Here are some notable features of ELSS mutual funds:
- There are different payout methods in ELSS funds. One is a growth scheme in which you receive a lump sum amount after the lock-in period. Another is the dividend scheme, which provides regular dividends during the 3-yr lock-in period.
- The fund invests at least 80% in equity and equity-related instruments in a diversified manner, i.e. across market capitalisations, themes, and sectors.
- There is a lock-in period of 3-yr with no provisions to make a premature exit.
- ELSS funds are the only tax-saving investment with the potential to offer inflation-beating returns.
- ELSS are considered high-risk investments as they invest in the equity market, which is volatile in nature.
Taxation on ELSS Funds as per the Budget 2024
Since ELSS funds fall under the category of equity funds, they are subject to the same taxation rules as other equity mutual funds. The Union Budget 2024 has introduced significant changes to the taxation of equity mutual funds, simplifying the tax structure while altering rates and benefits. Here is a detailed breakdown of the new tax rules:
Short-Term Capital Gains (STCG)
If you hold equity mutual funds for less than a year, the gains from these investments are classified as short-term capital gains. According to the new budget, these gains are now taxed at a rate of 20%, which has been increased from the previous rate of 15%.
Long-Term Capital Gains (LTCG)
For equity mutual funds held for more than a year, the gains are considered long-term capital gains. The key points to note under the new budget are:
- Tax-Free Limit: Gains up to Rs. 1.25 lakh in a financial year remain tax-free. This limit has been increased from the previous threshold of Rs. 1 lakh.
- Tax Rate: Any gains above Rs. 1.25 lakh are taxed at a flat rate of 12.5%. It was previously taxed at 10%.
- Indexation: It’s important to note that the benefit of indexation, which previously allowed investors to adjust the purchase price of their assets for inflation, has been removed for all asset classes, including equity mutual funds.
Indexation is a method used to adjust the purchase price of an asset (like property or gold) for inflation over the years. This adjusted price is then used to calculate capital gains. Previously, long-term capital gains from selling property, gold, or other unlisted assets were taxed at 20%, but you could use indexation to reduce your taxable profit. The new rule simplifies the tax structure by setting a flat 12.5% tax rate for all long-term capital gains. However, it removes the indexation benefit.
Summary
| Capital Gains Tax | Holding Period | Old Rate | New Rate |
| Short-Term Capital Gains (STCG) | Less than 12 months | 15% | 20% |
| Long-Term Capital Gains (LTCG) | More than 12 months | 10% | 12.50% |
- No Indexation Benefit: This change affects the overall tax liability, potentially increasing it for long-term investors.
Factors to consider before investing in ELSS mutual funds
If you are looking forward to investing in ELSS mutual funds, consider the following factors:
Financial goal and investment plan
Your investments should align with your financial goals. Therefore, curating an investment plan that suits your income, risk appetite, and other factors is crucial. While one scheme might be perfect for an investor, it is not necessary that it will work for you as well. Hence, identify your investment objectives before investing in ELSS units.
Risk appetite
ELSS funds are exposed to volatile market conditions because of their underlying securities. Therefore, these funds are associated with high risk. Hence, if you decide to invest in ELSS mutual funds, make sure to assess your risk profile beforehand. Moreover, investing in any mutual fund depends on your risk appetite.
Investment time horizon
ELSS funds have a lock-in period of 3-yrs. It means investors cannot redeem their capital and gains within that time frame. Hence, it is vital to consider before investing in ELSS before you part with your savings for 3-yrs.
Fund’s past performance
You should always check returns generated by a fund over a trailing period of 3-yr and 5-yr or longer if necessary. When you understand how a specific scheme has performed in the previous years in response to the different market conditions, it becomes easy for you to check if it aligns with your investment goals and plan or not.
Funds’ plans
There are two types of plans available for a fund – direct and regular. In a direct plan, there is no role of brokers, and hence, they are offered directly to the investor. On the flip side, regular plans involve third-party participation. So, they entail a commission.
To conclude
ELSS mutual funds are tax-saving and have a 3-yr lock-in period. Although they have the potential to yield high returns, they are considered to be highly risky investments. You can save your research efforts and time by using Tickertape’s Mutual Fund Screener to find the best mutual fund based on your risk tolerance and investment preferences! For all your research needs, #TickertapeHaiNa!
FAQs
Why should you invest in ELSS mutual funds?
ELSS mutual funds are tax-saving funds that give you an opportunity to generate wealth over time, like all other mutual funds, along with saving tax.
What are the disadvantages of ELSS mutual funds?
ELSS mutual funds invest heavily in equity markets. Equity-related instruments are heavily susceptible to market volatility. Hence, due to this, ELSS mutual funds are highly risky.
Is ELSS taxable after 3-yrs?
The long-term capital gains on ELSS are tax-exempt up to Rs. 1 lakh and the dividend received is tax-free. Even after the lock-in period of 3-yrs, you can continue your investment in these funds.
As an insatiable reader and learner, I’ve spent the last two years exploring the world of finance. With my creative mind and curious spirit, I love making complex finance topics easy and fun for everyone to understand. Join me on my journey as we navigate the world of finance together!
