Last Updated on Jun 15, 2022 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-yrs with no provisions to make a premature exit. Let’s explore more about them, their features, factors to consider before investing, and 10 best ELSS mutual funds.

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-yrs, 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:

  1. 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.
  2. The fund invests a minimum of 80% in equity and equity-related instruments in a diversified manner i.e. across market capitalisations, themes, and sectors.
  3. There is a lock-in period of 3-yrs with no provisions to make a premature exit.
  4. ELSS funds are the only tax-saving investment with the potential to offer inflation-beating returns.
  5. ELSS are considered high risk investments as they invest in the equity market, which is volatile in nature.

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, it is crucial to curate an investment plan that suits your income, risk-appetite and other factors. 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 a vital factor 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’s aligning 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.

Best ELSS mutual funds

Note: The information is dated 10 June 2022. We ranked the 10 best ELSS mutual funds based on the following parameters:

  1. 3Y Rolling Returns 
  2. CAGR – 5Y 
  3. Expense Ratio
  4. Volatility
  5. Plan – Growth
S. No.NameAUM (Rs in cr.)CAGR 3Y (%)3Y Avg Annual Rolling Return (%)CAGR 5Y (%)Expense Ratio (%)Volatility (%)
1.Quant Tax Plan1,358.8133.9342.8321.970.5722.01
2.BOI AXA Tax Advantage Fund595.5721.1429.0615.151.3417.60
3.Mirae Asset Tax Saver Fund11,962.6618.7426.8915.990.5216.35
4.Canara Rob Equity Tax Saver Fund3,629.4717.6025.7615.180.6216.40
5.IDFC Tax Advt(ELSS) Fund3,741.5618.1726.5513.850.7718.60
6.DSP Tax Saver Fund9,503.6716.6424.6112.980.8216.07
7.PGIM India ELSS Tax Saver Fund378.9516.5023.0712.881.0315.76
8.Kotak Tax Saver Fund2,670.3315.2922.7812.470.7516.33
9.JM Tax Gain Fund65.0715.0823.1812.221.6117.21
10.Union Long Term Equity Fund489.4916.7423.0712.201.6316.32

1. Quant Tax Plan

Launched in 2000, Quant Tax Plan is an open-ended fund managed by Quant Money Managers Ltd. The fund currently has Assets Under Management (AUM) of Rs 1,358.81 cr. and the latest NAV as of 10 June 2022 is Rs 231.30.

The fund has a 5-yr CAGR of 21.97%. You can invest in it via a minimum Systematic Investment Plan (SIP) of Rs 500. The fund has a higher 3-yr annual rolling return of 42.83%.

2. BOI AXA Tax Advantage Fund

BOI AXA Tax Advantage Fund is managed by BOI AXA Investment Managers Private Limited. It is a joint venture between one of the largest Public Sector Banks (PSB) in India, the Bank of India or BOI, and the AXA Investment Managers group, one of the world’s largest asset management and investment corporations.

The fund currently holds AUM of Rs 595.57 cr. and the NAV of Rs 99.68. It has a 5-yr CAGR of 15.15%. You can invest in this fund via a minimum SIP of Rs 500.

3. Mirae Asset Tax Saver Fund

Launched in 2015, Mirae Asset Tax Saver Fund is managed by Mirae Asset Financial Group, one of the key players in the Asian financial market. It is an open-ended fund with an AUM of Rs 11,962.66 cr.

The NAV of the fund is Rs 31.63. It has a 5-yr CAGR of 15.99%. You can start by investing in this fund via a minimum SIP of Rs 500. The fund has a 3-yr rolling return of 18.74%.

4. Canara Rob Equity Tax Saver Fund

Launched in 2009, Canara Rob Equity Tax Saver Fund is managed by Canara Robeco Asset Management Company Ltd. (CRAMC), a joint venture between the now defunct Canbank Mutual Fund and Robeco Groep N.V. 

The AUM of the fund is Rs 3,629.47 cr. and the current NAV is Rs 113.76. Its 5-yr CAGR is 15.18%. You can start investing in this fund with a minimum SIP of Rs 500.

5. IDFC Tax Advantage (ELSS) Fund

IDFC Tax Advantage (ELSS) Fund is an open-ended equity linked saving scheme, managed by IDFC AMC Limited, which is a subsidiary of the IDFC Financial Holding Company. The current NAV of the fund is Rs 100.86.

Further, the fund currently holds an AUM of Rs 3,741.56 cr. and has a 5-yr CAGR of 13.85%. You can invest in this fund with a minimum SIP amount of Rs 500.

6. DSP Tax Saver Fund

DSP Tax Saver Fund was set in motion in the year 2013. It is managed by DSP Investment Managers which is a part of The DSP Group. They are a 150+ year old financial company. Moreover, the fund house has grown to become one of India’s premier AMCs with a track record of over 20 years.

The DSP Tax Saver Fund has an AUM of Rs 9,503.67 cr. and the current NAV of Rs 81.32. The fund has a 5-yr CAGR of 12.98% and a 3-yr rolling return of 24.61%. You can start investing in this fund with either a minimum lump sum amount of Rs 500 or via a SIP of Rs 500.

7. PGIM India ELSS Tax Saver Fund

Launched in 2015, PGIM India ELSS Tax Saver Fund is an open-ended equity savings scheme. It is managed by PGIM India Mutual Fund, which is owned by PGIM, the global investment management business of the US based Prudential Financial, Inc. (PFI).

The fund has an AUM of Rs 378.95 cr. Its current NAV is Rs 24.30. The fund has a 5-yr CAGR of 12.88% and a 3-yr rolling return of 23.07%. You can invest in this fund with a minimum amount of Rs 500.

8. Kotak Tax Saver Fund

Since its launch in 2005, Kotak Tax Saver Fund is managed by Kotak Mahindra Asset Management Company Limited (KMAMC), a wholly owned subsidiary of Kotak Mahindra bank Limited (KMBL). The AUM of the fund is Rs 2,670.33 cr. and the current NAV is Rs 75.38.

The 3-yr rolling return of the fund is 22.78% and a 5-yr CAGR is 12.47%. You can start investing in this fund with an amount as low as Rs 500.

9. JM Tax Gain Fund

JM Tax Gain Fund was launched in 2008. It is managed by JM Financial Asset Management Private Limited, one of the first privately operated mutual funds companies. The fund has an AUM of Rs 65.07 cr., which is the lowest among the list of 10 best ELSS mutual funds.

The NAV of the fund is Rs 28.62. A 3-yr rolling return of the fund is 23.18%. Further, the fund has a 5-yr CAGR of 12.22%. You can start your investment in this fund with a minimum amount of Rs 500.

10. Union Long Term Equity Fund

Union Long Term Equity Fund was launched in 2011 and is managed by Union Asset Management Company Pvt. Ltd. You can invest in this fund with an amount as low as Rs 500. The fund has an AUM of Rs 489.49 cr.

Further, it has a 5-yr CAGR of 12.20% and a 3-yr rolling return of 23.07%. The NAV of the fund as of 10 June 2022 is Rs 40.82.

To conclude

ELSS mutual funds are tax-saving and have a 3-yr lock-in period. Although they have a 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, Tickertape hai na!

FAQs

1. 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.

2. 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.

3. Is ELSS taxable after 3-yrs?

The maximum deduction you can claim on the amount you have invested in ELSS mutual funds is Rs 1,50,000 per year, subject to the overall permissible limit of the section.

Anjali Chourasiya

We'd love to hear your thoughts 🥰