If you are planning to save tax along with investment, then the Equity-Linked Savings Scheme (ELSS) can be a great option for you. ELSS mutual funds not only offer tax exemption of up to Rs 1.5 lakh under Section 80C, under the Old Tax Regime, of the Income Tax Act, but also have a lock-in period of only 3 years. In comparison, your money remains locked in tax-saving FDs for 5 years and PPF for 15 years.
Recent performance of ELSS funds
The returns of ELSS funds have also been affected due to market volatility in the last few months. The market declined between October 2024 and February 2025, due to which the average return of ELSS funds in the short term was -6.32%. However, if we look at the one-year performance, it is 6.99%.
But for long-term investors, ELSS has given great returns. The average return of ELSS funds (40 schemes) has been 25.34% CAGR in the last 5 years and 12.61% in the last 10 years.
Also read: How ELSS funds can help you save taxes & grow your wealth
Here are the top 5 ELSS funds that have given 15.29% to 20.17% returns on lump sum investments and up to 16.36% to 22.47% returns on SIP investments.
1. Quant ELSS Tax Saver Fund
Annualised return since launch in January 2013: 20.17%
Assets: Rs 9,486 crore
Expense ratio: 0.50%
A Rs 10,000 SIP started in January 2013 would have turned into a whopping Rs 62 lakh corpus with an annualised return of 22.47%.
2. DSP ELSS Tax Saver Fund
Annualised return since launch in January 2013: 17.95%
Assets: Rs 14,981 crore
Expense ratio: 0.72%
A Rs 10,000 SIP started 12 years ago would be now Rs 47.43 lakh with an annualised return of 18.5%.
3. SBI Long Term Equity Fund
Annualised return since launch (1 January 2013): 16.50%
Assets: Rs 25,724 crore
Expense ratio: 1.07%
Your Rs 10,000 SIP would have turned into a Rs 45 lakh corpus in 12 years, at an annualised return of 17.7%.
4. Franklin India ELSS Tax Saver Fund
Annualised return since launch in January 2013: 16.22%
Assets: Rs 5,986 crore
Expense ratio: 1.09%
If you had started a Rs 10,000 SIP in January 2013, the corpus today would be Rs 41.12 lakh at an annualised rate of return of 16.37%.
5. HDFC ELSS Tax Saver Fund
Annualised return since launch in January 2013: 15.29%
Assets: Rs 14,671 crore
Expense ratio: 1.09%
A Rs 10,000 SIP started in January 2013 would now be Rs 41.10 lakh, earning an annualised return of 16.36%.
(Data source: Value Research)
Also read: Only 3 out of 519 equity mutual funds delivered positive returns in 6 months — Do you own one?
Benefits of investing in ELSS funds
Tax savings – Tax exemption up to Rs 1.5 lakh under 80C.
Shortest lock-in period – just 3 years, compared to 15 years in PPF and 5 years in FD.
Long-term wealth creation – tremendous benefit of compounding on investment of 10+ years.
Diversified portfolio – Investment in many sectors and companies, which reduces the risk.
Advantage of SIP mode – Possibility of better returns than rupee cost averaging.
Risks associated with investing in ELSS funds
Market risk – Since ELSS are equity-based, they can be affected by market decline.
No guaranteed returns – There is no fixed return in ELSS as compared to PPF and FD.
3-year lock-in – Although it is less than other tax saving options, but this period is fixed.
Which investors should invest in ELSS funds?
Those who want high returns along with tax savings – To get more growth than PPF and FD.
Long-term investors – If your goal is 5+ years, then ELSS is the best option.
Those who can withstand market volatility – Long-term investors benefit.
New investors – This can be a good way to start investing in the equity market.
Summing up
If you want both tax savings and wealth creation, ELSS funds are an excellent option. However, their returns are completely market dependent, so before investing, understand your risk appetite and investment period. If you can invest for the long term and are ready to withstand market volatility, ELSS funds can be a great addition to your portfolio.
Disclaimer: The above content is for informational purposes only. Mutual Fund investments are subject to market risks. Please consult your financial advisor before investing.