Best ELSS Mutual Funds to Invest

Investing is a great way to grow your money, and if you’re looking for an option that saves tax while building wealth, ELSS mutual funds are worth exploring. ELSS is a popular investment choice among those who want to save tax under Section 80C of the Income Tax Act. It helps you save tax and offers the potential for high returns through equity investments. Let’s dive into what ELSS mutual funds are and explore some of the best options available.

What are ELSS Mutual Funds?

Equity-Linked Savings Schemes (ELSS) are mutual funds primarily investing in equity and equity-related instruments. They are popular because they offer dual benefits: the potential for wealth creation and tax savings under Section 80C of the Income Tax Act. ELSS funds come with a compulsory lock-in period of 3 years, which is the shortest of all tax-saving investments. This means you cannot withdraw your money before three years from the investment date.

Moreover, they are managed by fund managers who strategically invest in a diversified portfolio of stocks. The fund's value depends on the market performance of the invested stocks. While ELSS funds carry some market risk due to their equity exposure, they have the potential for higher returns than traditional tax-saving options like Fixed Deposits and Public Provident Funds (PPF). ELSS funds are suitable for investors willing to take a moderate to high risk in exchange for potential returns over the long term.

Top 10 ELSS Funds

Below are the top 10 ELSS funds:

Overview of ELSS Funds

Here's a brief overview of each fund:

Motilal Oswal ELSS Tax Saver Fund
This fund has shown impressive growth with a one-year return of 77.70%. It focuses on high-quality stocks across sectors and is known for its aggressive approach. The fund's performance is driven by its focused portfolio strategy, which means it invests in a limited number of stocks with high conviction.

SBI Long Term Equity Fund - Direct-Growth
SBI's ELSS fund boasts a return of 54.11% over the past year. Managed by one of India’s leading asset management companies, this fund adopts a blend of large-cap and mid-cap stocks, aiming for a balanced approach between growth and stability.

Quant ELSS Tax Saver Fund Direct Plan
With a one-year return of 46.79%, this fund stands out due to its agile management and dynamic stock selection process. It often focuses on small to mid-cap stocks, aiming to capture high-growth segments, albeit with higher risk.

JM Tax Gain Fund Direct
This fund has delivered returns of 53.29% in one year. It is characterised by a diversified portfolio across sectors and market caps, which helps mitigate risk while offering the potential for substantial returns.

DSP Tax Saver Fund Direct
Offering a return of 47.82%, DSP’s ELSS fund is known for its focus on high-quality large and mid-cap stocks. It emphasises long-term growth and stability, making it a preferred choice for conservative investors looking for steady returns.

Parag Parikh Tax Saver Fund Direct
This fund, which has returned 34.93%, follows a value investing approach. It invests in domestic and international equities, providing geographical diversification. The fund’s unique approach helps cushion against local market volatility.

Kotak ELSS Tax Saver Fund Direct
This fund has recorded a 38.75% return over the past year. It focuses on growth-oriented companies with solid fundamentals, mainly in large and mid-cap segments. Kotak’s prudent stock selection has helped it maintain competitive returns.

Bandhan Tax Advantage (ELSS) Fund
With a relatively modest one-year return of 16.8%, Bandhan’s ELSS fund takes a conservative approach with a balanced allocation between large and mid-cap stocks. It focuses on stable sectors, making it suitable for risk-averse investors.

SBI Long Term Equity Fund
This is another high-performing ELSS fund from SBI with a return of 54.1%. It follows a diversified strategy, investing in companies with strong growth prospects across different sectors, aiming to balance risk and reward effectively.

Bank of India ELSS Tax Saver Fund
With a one-year return of 45.8%, this relatively new fund has carved a niche through active management and a balanced portfolio. It aims to provide capital appreciation while adhering to a disciplined investment approach.

Advantages of ELSS Mutual Fund

The benefits of investing in the best ELSS Mutual Funds are as follows:

Shorter Lock-in Period
Unlike other tax savers, ELSS funds lock money only for 3 years, allowing easier withdrawal than 15-year locking options.

Potential for Good Returns
Since ELSS funds invest in shares, there is a chance of high returns if share prices rise. Other tax savings schemes, like FDs, offer fixed returns.

Tax Saving Tool
Can save income tax by claiming up to ₹1.5 lakh invested in ELSS under Section 80C.
Flexible Investment Option. One can start ELSS investment via lump sum or affordable monthly SIP instalments.

Disadvantages of ELSS Mutual Fund

Below are the limitations of the best tax saving mutual funds:

Risks of Share Market
Returns are not fixed, as the best ELSS funds buy shares. Share price changes lead to investment value fluctuating.

3 Year Lock-in
Unlike FD or savings accounts, invested money remains locked for 3 years - reducing withdrawal flexibility.

Fees Charged
Fund manager fees charged lower overall returns from ELSS investments.

No Control
Investors cannot control which shares the fund manager selects or buy-sell timings.

Price Volatility
As ELSS funds hold equity, sharp ups and downs are common - and may not suit risk-averse investors.