ELSS Funds (Tax Savings)

ELSS funds invest at least 80% of their total assets in equity and equity-related schemes. They come with a lock-in period of 3 years.

time horizon

3 years Lock-in

total funds

58 Funds

total aum

₹2,05,225 Cr Total AUM

Equity

Explore ELSS (Tax Savings) Mutual Funds

Fund nameFund sizeExpense Ratio
3Y Returns
Sundaram Long Term Micro Cap Tax Advantage Fund Series IV₹39 Cr1.32%34.9%
Sundaram Long Term Tax Advantage Fund Series III
Sundaram Long Term Tax Advantage Fund Series III

ELSS (Tax Savings) Very High Risk

₹37 Cr1%34.7%
Sundaram Long Term Micro CapTax Advantage Fund Sries III₹83 Cr1.24%34.5%
Quant ELSS Tax Saver Fund
Quant ELSS Tax Saver Fund

ELSS (Tax Savings) Very High Risk

₹7,237 Cr0.76%34.5%
Sundaram Long Term Tax Advantage Fund Series IV
Sundaram Long Term Tax Advantage Fund Series IV

ELSS (Tax Savings) Very High Risk

₹24 Cr1.03%34.1%
Sundaram Long Term Micro Cap Tax Advantage Fund Series V₹33 Cr1.03%33.9%
SBI Long Term Equity Fund
SBI Long Term Equity Fund

ELSS (Tax Savings) Very High Risk

₹20,085 Cr0.98%27.4%
HDFC ELSS Tax saver
HDFC ELSS Tax saver

ELSS (Tax Savings) Very High Risk

₹13,440 Cr1.14%26.2%
Bank of India ELSS Tax Saver Fund
Bank of India ELSS Tax Saver Fund

ELSS (Tax Savings) Very High Risk

₹1,090 Cr1.21%25.5%
Parag Parikh ELSS Tax Saver Fund
Parag Parikh ELSS Tax Saver Fund

ELSS (Tax Savings) Very High Risk

₹2,760 Cr0.73%24.7%

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All about ELSS Funds (Tax Savings)

What are ELSS Mutual Funds?

As per SEBI’s classification, ELSS mutual funds invest at least 80% of their total assets in equity and related instruments while offering tax benefits under Section 80C of the Income Tax Act, 1961. These funds have a mandatory lock-in period of 3 years.

Also, note the tax benefit is available only for individuals opting for the old tax regime.

In 2022, SEBI has allowed mutual fund houses to launch passively managed ELSS funds. However, an AMC can have either an actively managed ELSS or a passively managed ELSS fund.

Advantages of ELSS Funds

Higher returns among Section 80C instruments

ELSS mutual funds are market-linked tax savings schemes that generate high returns in the long term. ELSS investments generate higher returns than traditional tax-saving schemes like the Public Provident Fund (PPF), National Savings Certificate (NSC), Tax Savings FD, etc.

Scheme PlanInterest Rate
Equity Linked Savings Scheme (ELSS)Market-linked
National Pension System (NPS)9 to 12%
Public Provident fund (PPF)7.10%
National Savings Certificate (NSC)7.70%
Tax Saving Fixed Deposits6.90 to 7.50%
Employee Provident Fund (EPF)8.15%
Sukanya Samriddhi Yojana (SSY)8%
Senior Citizens Savings Scheme (SCSS)8.20%

Note: Government scheme interest rates are for the quarter Oct-Dec’23

Lower tax on gains

ELSS funds are taxed like equity mutual funds. Since they have a lock-in period of 3 years, the capital gains attract LTCG tax. Capital gains above Rs 1 lakh are taxed at 10%. 

On the other hand, interest from tax-saving FDs is added to your total taxable income and taxed as per the applicable income tax slab rate. 

Thus, when compared to tax savings FDs and some 80C instruments, ELSS have a better taxation policy. 

Scheme NameTaxation
ELSS Mutual FundsCapital gains taxable at 10%
Tax Saving Fixed DepositInterest taxable as per the IT slab rate
Public Provident Fund (PPF)Interest is tax-free
National Savings Certificate (NSC)Interest taxable as per the IT slab rate
National Pension Scheme (NPS)40% interest of the fund is tax-free on maturity
Senior Citizens Savings Scheme (SCSS)Interest taxable as per the IT slab rate
Sukanya Samriddhi Yojana (SSY)Interest is tax-free

Lowest lock-in period among 80C instruments

One of the biggest advantages of ELSS funds is their low lock-in period. ELSS funds have the lowest lock-in period compared to other tax savings options under Section 80C.

Scheme NameLock in Period (Yr)
ELSS Mutual Funds3
Tax Saving Fixed Deposit5
National Savings Certificate (NSC)5
Unit Linked Insurance Plan (ULIP)5
Senior Citizens Savings Scheme (SCSS)5
Public Provident Fund (PPF)15
Sukanya Samriddhi Yojana (SSY)21
National Pension Scheme (NPS)Till retirement

Disadvantages of ELSS Funds

Risk

Since ELSS schemes invest in equities, the fund portfolio is highly susceptible to market fluctuations. Almost all tax savings options under Section 80C offer guaranteed returns and thus carry minimum to zero risk. 

3-Year mandatory lock-in

ELSS schemes have a mandatory lock-in period of 3 years. Premature withdrawals, either fully or partially, are not accepted.

Should you invest in ELSS Funds?

Well, the answer depends on the tax regime you choose. Yes, if you are filing taxes as per the old regime. 

And, NO, if you are filing taxes as per the new regime. The new tax regime doesn’t offer any tax exemptions. Also, because, historical data shows, ELSS funds have underperformed their benchmark and a mandatory a lock-in. You can rather divert the corpus towards other equity funds with a higher potential to generate better returns.

Speak to a financial advisor who will analyse your profile and portfolio and suggest whether ELSS funds are the right tax-saving instruments for you.

However, here are some situations where you can consider ELSS funds if you are opting for old tax regime:

Dual Advantage

ELSS mutual funds have the dual advantage of tax saving and wealth creation. Thus, your investments will potentially generate higher returns than traditional schemes under favourable market conditions.

Investing through SIPs

Investing a lump sum of Rs 1.5 lakhs to save tax can often become a burden for most investors.

SIPs in ELSS funds will help you invest small amounts regularly and automate your investments. With just a one-time bank mandate, you can automate your ELSS mutual fund investments.

Most tax savings schemes do not have an auto investment option. Thus, investing in ELSS funds is easy on the pockets as well as hassle-free.

Note: The above information is for educational purposes only. It is best to consult a financial advisor before making investment decisions.

Still got questions?
We're here to help.

Even if you invest more than Rs 1.5 lakhs in a single ELSS fund, you are eligible for an exemption up to Rs 1.5 lakhs only. As per Section 80C of the Income Tax Act, you can get an exemption of up to Rs 1.5 lakhs when investing in ELSS funds.
No. If you have already exhausted the tax exemption limit, it is not advisable to invest in ELSS funds. Instead, you can pick other equity funds with better return prospects and no lock-in.
No. All ELSS mutual funds have a mandatory lock-in period of three years. You can’t partially or fully withdraw your investment during the lock-in period.
Upon completing the lock-in period, you can withdraw the investment or stay invested. Once the lock-in period is over, you can withdraw the investment anytime.
The answer depends on your risk profile. If you are okay with equity risk, ELSS funds are a better option that offers higher returns, lower lock-in, and favourable taxation (if you are in 20% and higher tax bracket).
Tax-saving FD or other tax-saving schemes would be a better option if you are a risk-averse investor.