People actively seek savings options in any financial year to maximise their tax benefits under Section 80C. Equity-Linked Savings Schemes (ELSS) have emerged as a favourite among the various choices available. This is evidenced by their impressive growth of 40.9% in FY 2024, with investments soaring from ₹151,751 crores to ₹213,760 crores. ELSS funds offer substantial tax benefits and present a robust opportunity for wealth creation.
This blog will explore the best mutual funds for tax saving, their unique advantages, and how you can make informed investment decisions. By the end of this article, you will have a comprehensive understanding of the top tax-saving mutual fund schemes and how to leverage them for optimal tax benefits.
Equity-Linked Savings Schemes (ELSS) are mutual funds that primarily invest in equities. Section 80C of the Income Tax Act 1961 designs these to provide tax benefits.
ELSS funds allow you to invest up to ₹1.5 lakh per financial year, and the amount invested qualifies for a tax deduction. One of the standout features of ELSS is its relatively short lock-in period of three years, which is the shortest among all Section 80C investment options.
Investing in ELSS can help you save a significant amount in taxes, up to ₹46,800, depending on your tax slab. Here’s how:
Now that you understand how ELSS helps save tax, let's explore some of the best mutual funds. The table below (as of May 2024) lists top-performing ELSS funds based on their returns and other key parameters:
Scheme Name |
Asset Under Management (Cr) |
Annual Returns % |
MIRAE ASSET ELSS TAX SAVER FUND REGULAR PLAN GROWTH |
22,471.76 |
3Y: 16.13%, 5Y: 18.89% |
DSP ELSS TAX SAVER FUND - GROWTH |
14,859.56 |
3Y: 19.45%, 5Y: 19.8% |
KOTAK ELSS TAX SAVER FUND - GROWTH |
5,608.21 |
3Y: 20.52%, 5Y: 19.14% |
FRANKLIN INDIA ELSS TAX SAVER FUND - GROWTH |
6,383.38 |
3Y: 20.62%, 5Y: 17.96% |
BANDHAN ELSS TAX SAVER FUND-REGULAR PLAN-GROWTH |
6,432.29 |
3Y: 18.99%, 5Y: 19.52% |
HDFC ELSS TAX SAVER - GROWTH OPTION |
1,4474.85 |
3Y: 25.32%, 5Y: 18.09% |
Selecting the right Equity-Linked Savings Scheme (ELSS) is crucial for optimising your tax benefits and returns. Here are key factors to consider:
Why It Matters: A fund's historical performance is a strong indicator of its potential future returns and stability. By analysing performance over different periods (1 year, 3 years, 5 years), you can gauge how well the fund has managed market volatility and economic changes.
Example: A fund like Mirae Asset ELSS Tax Saver Fund, which shows strong returns across 1, 3, and 5 years, demonstrates consistent performance and reliable management.
Why It Matters: The expertise and experience of the fund manager play a pivotal role in the fund’s performance. An experienced fund manager with a solid track record can make informed decisions that enhance the fund’s returns.
Example: If a fund like DSP ELSS Tax Saver Fund has a well-regarded manager who consistently delivers high returns across different market cycles, it’s a positive sign of its potential.
Why It Matters: The expense ratio is the annual fee charged by the fund to manage your investment. A higher expense ratio suggests that more of your returns are used to cover management costs, thereby reducing your gains.
Example: Choosing a fund like Kotak ELSS Tax Saver Fund with a competitive expense ratio can enhance your net returns over time.
Why It Matters: Understanding where the fund invests its money gives you insights into the risk and growth potential of the fund. A well-diversified portfolio can mitigate risks and provide balanced growth.
Example: A fund like Bandhan ELSS Tax Saver Fund with a diversified portfolio spread across various sectors can reduce the impact of volatility and provide more stable returns.
By carefully considering these factors, you can make an informed decision that aligns with your financial goals and risk tolerance.
While mutual fund tax saving schemes offer excellent benefits, it's essential to know the risks involved. ELSS funds invest primarily in equities, which are subject to market fluctuations. Therefore, the returns are not guaranteed and may vary based on market conditions. Additionally, the three-year lock-in period means you cannot access your funds during this time, so ensure you have sufficient liquidity before investing.
Also Read: Benefits of Investing In ELSS Mutual Fund
Investing in tax-saving mutual fund schemes, particularly ELSS, is a strategic move that offers the dual benefits of tax deductions and potential wealth creation. By carefully selecting the best mutual funds for tax saving, you can optimise your investment portfolio and significantly reduce your tax liability.
For comprehensive insights, expert advice, and detailed guidance on choosing the right mutual fund for tax benefits, visit the Sharekhan Knowledge Centre. Equip yourself with the knowledge and tools to make smart investment choices and secure your financial future.
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