0
0
If you’re wanting to grow your wealth while also saving on taxes, Equity Linked Savings Scheme (ELSS) mutual funds can be a smart option to consider. These funds are a popular choice for investors looking to claim deductions under Section 80C of the Income Tax Act.
ELSS Mutual Funds not only offer tax benefits but also have the potential to deliver strong returns through equity investments. In this Blog, we’ll break down what ELSS mutual funds are, explore their benefits, and highlight some of the top ELSS fund options you can invest in.
What is an ELSS Mutual Fund?
Equity-Linked Savings Schemes (ELSS) are mutual funds that mainly invest in equities and related instruments. They are widely favored for offering two key advantages: the opportunity to build wealth and save taxes under Section 80C of the Income Tax Act. One unique feature of ELSS is the mandatory 3-year lock-in period—the shortest among all tax-saving options, meaning your investment cannot be withdrawn before three years.
These funds are actively managed by professional fund managers who invest in a diversified mix of stocks. The performance of an ELSS fund is directly linked to market movements. Although they involve a certain level of market risk due to their equity exposure, ELSS funds typically offer better return potential compared to traditional tax-saving instruments like Fixed Deposits or PPF. They are ideal for investors who can tolerate moderate to high risk and are focused on long-term financial growth.
List of ELSS Mutual Funds to Invest in June 2025
| Fund Name | 3-Year Returns (CAGR) | Lock-in Period | Remarks |
| Canara Robeco ELSS Tax Saver Fund | 16.1% | 3 years | Existing top performer |
| Mirae Asset ELSS Tax Saver Fund | 17.4% | 3 years | Existing top performer |
| Invesco India ELSS Tax Saver Fund | 14.3% | 3 years | Solid track record |
| DSP ELSS Tax Saver Fund | 15.0% | 3 years | Consistent performer |
| Quant ELSS Tax Saver Fund | 23.5% | 3 years | New addition, high returns |
| Bank of India ELSS Tax Saver Fund | 13.2% | 3 years | New addition |
Key Factors to Consider Before Investing in ELSS Funds
1. Lock-in Period of 3 Years
ELSS funds have a mandatory lock-in period of three years, which means you cannot withdraw your investment before this time. This is the shortest lock-in period among all tax-saving instruments under Section 80C. Investors should plan their liquidity needs accordingly and be prepared to stay invested for at least three years without accessing the funds.
2. Unguaranteed Market-Linked Returns
Returns from ELSS funds are not fixed or guaranteed as they are directly linked to the performance of the underlying equities. These funds invest in stock markets, and hence, returns can vary based on market fluctuations. While there is a potential for higher gains, there is also a risk of loss, making them suitable for investors with a moderate to high-risk appetite.
3. Ideal for Long-Term Investment
Although the lock-in period is three years, holding ELSS investments beyond five years is advisable for better wealth creation. A longer investment horizon helps absorb short-term market volatility and increases the chances of earning substantial returns.
4. Risk Profile and Investment Goals
Since ELSS funds carry equity exposure, they may not be ideal for very conservative investors. However, for those with long-term goals like retirement planning or children’s education, ELSS can be a suitable option.
5. Fund Manager’s Expertise
The experience and track record of the fund manager play a vital role in the performance of ELSS funds. Skilled fund managers make strategic asset allocation decisions, which can impact the returns significantly.
6. Expense Ratio
A lower expense ratio means more of your money stays invested and can generate returns. While evaluating funds, compare expense ratios along with performance.
7. Diversification Within the Fund
Check how diversified the fund is across sectors and market capitalizations (large-cap, mid-cap, small-cap). A well-diversified ELSS fund reduces risk and enhances return potential over the long term.
8. SIP or Lump Sum Mode of Investment
When you’re ready to invest, you’ll need to decide between a Systematic Investment Plan (SIP) or a lump sum investment. SIPs involve investing a fixed amount regularly, which can be particularly beneficial in a fluctuating market due to rupee cost averaging. This strategy generally works best for investors who prefer to contribute gradually over time.
Benefits of Investing in the ELSS Mutual Fund
- Quick Access to Your Money: Unlike other tax-saving schemes that might tie up your funds for 15 years, ELSS funds have a significantly shorter lock-in period of just 3 years, making your investment more accessible.
- Opportunity for Higher Growth: Because ELSS funds invest in the stock market, they offer the potential for good returns if share prices increase. This contrasts with other tax-saving options like Fixed Deposits (FDs), which typically provide predetermined, fixed returns.
- Effective Tax Reduction: ELSS serves as an excellent tax-saving tool, allowing you to claim a deduction of up to ₹1.5 lakh on your taxable income under Section 80C.
- Adaptable Investment Choices: You have the flexibility to invest in ELSS either through a single lump sum payment or via convenient and affordable monthly installments through a Systematic Investment Plan (SIP).
Final Thoughts
ELSS mutual funds offer a dual advantage, effectively combining tax savings with wealth growth. By investing regularly through SIPs and maintaining a long-term perspective, you can leverage ELSS to achieve your financial objectives while simultaneously lowering your tax burden. For your 2025 investment plan, consider adding ELSS funds to your portfolio.
Sources: msn.com
