Best ELSS Mutual Funds Sorted by Last 3 Year Returns
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About ELSS Mutual Funds
ELSS or Equity-Linked Savings Schemes are mutual funds that invest primarily in equities or equity-related products. 80% of their investments must be invested in equities, and the lock-in period is 3 years.
These tend to be open-ended funds that make a fair bit of returns. But most importantly, they qualify for a lot of tax deductions under Section 80C of the Income Tax Act, 1961.
Investment portfolio-wise, ELSS are just like any other equity fund as the exact amount and proportion of investment in companies and sectors differ from fund to fund based on the preference of the fund manager.
The dividends earned in ELSS may either be reinvested (under the growth option) or given to the investors (under the dividend option).
How do ELSS Funds work?
Equity-linked Savings Schemes or ELSS Funds fall within the category of mutual funds that invest your capital mainly in equity or equity-related instruments. ELSS funds are referred to as open-ended funds that have the potential to yield a fair degree of returns if invested in. In terms of the investment portfolio of ELSS funds, these funds primarily invest in equity, with fund managers actively investing your capital in sectors and companies that may bring you the best potential returns.
ELSS funds invest in the equity of companies and investors can benefit from dividends through such funds too. These may be re-invested (under the option of Growth Funds or distributed among investors (under the option of Dividend Funds). ELSS funds have a lock-in period of 3 years. Additionally, it is important to note that they qualify you for tax deductions under Section 80C of the Indian Income Tax Act of 1961.
Features of ELSS Mutual Funds
- Although their returns may seem less compared to small cap funds, they seem high when compared to other tax-saving instruments such as the Public Provident Fund, National Pension Scheme, etc.
- Investing in ELSS funds can lower the taxable income of an individual or a HUF by up to Rs. 1.5 lakh. This means if you invest up to Rs. 1.5 lakh in a year in an ELSS, then you can claim tax rebates worth up to Rs. 46,800 in that year (as that Rs. 150,000 is deducted from your taxable income). However, investments over and above Rs. 150,000 do not count for a tax deduction.
- ELSS schemes have a focus on equity investments, but they may also have minor investments in debt.
- One can invest in ELSS both through SIP (systematic investment plan) or in a lump sum.
- ELSS funds tend to have a lock-in period of roughly 3 years.
Advantages of ELSS Mutual Funds
The following are some of the advantages of ELSS mutual funds –
- Tax saving – It is an excellent tool for retail investors to save a large portion of their income from being taxed and additionally earn far higher returns from deploying the money than in a savings account.
- Short lock-in period – Compared to provident funds and pension funds, ELSS mutual funds have a relatively shorter lock-in period of 3 years (there may be some equity or debt funds though which may have a lower lock-in period than ELSS funds).
- Higher returns – Again, compared to provident funds or pension funds or even post office saving schemes, the returns of ELSS mutual funds can be higher, especially if they are some of the best ELSS funds. This is because they play with high-risk, high-return investment avenues like equity.
Overall, ELSS mutual funds can be a great way to induce the retail, salaried investors of India to start investing in the market, thereby channelling idle funds into the equity market.
Risks of ELSS Mutual Funds
- The risks associated with even some of the best ELSS mutual funds are pretty much the same as the risks associated with equity mutual funds which are the following –
- Market risk – This is the risk that the price of the securities or stocks invested in by the fund may drop, thereby putting the investor’s funds at risk. This happens especially during the time of general economic downturns like recessions when entire sectors (and thus multiple companies in the fund’s portfolio) experience a downturn together.
- Liquidity Risk – This is the risk not being able to buy or sell stocks at the right time due to a lack of sellers or buyers of adequate volumes respectively. Therefore, if a fund invests extensively in stocks which are not liquid, then it might be a problem.
- There may be further risks too – e.g. if the fund invests primarily in small cap companies instead of a more balanced portfolio, then the risk of capital loss becomes even higher.
Factors to Consider Before Investing in ELSS Funds
ELSS funds have features and advantages that may tempt you into investing in them. While such factors must be considered before you invest, there are other variables to be aware of before you invest. Consider the following before you invest in ELSS funds:
- While ELSS funds may yield potential tax benefits for you as an investor, you should be aware that they invest in equities and instruments related to equities. Given this, they may potentially be subject to risks that market exposure results in (like volatility and shifts in prices).
- While deciding on any investment, you should consider your own risk profile and your personal financial needs. If the tax benefits can help you, then these funds may be considered. Additionally, if you have a high tolerance for risk and can withstand equity investment fluctuations, you may consider ELSS funds. Furthermore, ELSS funds may be potentially productive for investors looking to yield returns in the long run.
- ELSS funds come with a lock-in duration that lasts for 3 years. This means that if you wish to exit the fund before this time limit, you will not be able to do so. On the other hand, if you want the potentially positive effects of compounding returns, ELSS funds may be a good bet for investment. You may also want to consider the fact that compared to other tax-saving investment instruments like PPF and NSC, ELSS funds offer the least amount of a lock-in period.
- Since ELSS funds allocate the majority of an investor’s capital to equity, it is important that you check on the asset allocation of the ELSS fund you opt for. This is why there are categories of ELSS funds to choose from, like high-risk funds that invest your capital in mainly small-caps, and medium-risk ELSS funds that invest in large-caps.
Who Should Invest in ELSS Mutual Funds?
1. Salaried Individuals
For salaried employees contributing to the Employees’ Provident Fund (EPF), which is a fixed-income option, investing in ELSS could offer higher returns. ELSS not only provides the potential for long-term growth but also offers tax deductions under Section 80C. While other options like ULIPs and NPS also offer tax benefits, they come with longer lock-in periods and possibly lower returns. ULIPs have a five-year lock-in, while NPS is more retirement-focused, locking funds until the age of 60. In contrast, ELSS has the shortest lock-in period of just 3 years.
2. First-time Investors
If you’re new to investing, ELSS is an excellent choice. Along with tax savings, it introduces you to equity and mutual fund investments. Though equity can be volatile in the short term, investing for over 5 years significantly reduces risk. SIPs (Systematic Investment Plans) in ELSS are a smart way to start, helping you accumulate units when markets are down and reap the benefits when they rise.
How to Choose ELSS Mutual Funds?
Selecting the right ELSS mutual fund requires thoughtful analysis aligned with your investment goals and risk tolerance. Start by reviewing key factors like:
- Expense ratio: Look for funds with a low expense ratio to ensure more of your money is invested and not eaten up by fees.
- Fund manager’s track record: Check the experience and success of the fund manager to gauge their ability to handle different market conditions.
- Fund performance: Analyse the fund’s performance over various market cycles, focusing on consistency and resilience during market downturns.
- Risk-return ratios: Consider metrics like standard deviation, Sharpe ratio, and Treynor ratio to assess the fund’s risk-return profile.
- SIP investment: Opt for systematic investment plans (SIPs) to benefit from rupee-cost averaging and reduce the impact of market volatility.
- Investment strategy: Ensure the fund’s strategy aligns with your financial goals and risk tolerance, whether you’re seeking aggressive growth or stable returns.
Liquidity preference: Consider the lock-in period and your liquidity needs before committing to an ELSS fund.
Taxation on ELSS Mutual Funds
- ELSS funds come with a mandatory lock-in period of 3 years, meaning you can only realise long-term capital gains (LTCG) when redeeming your units. The good news is that LTCG from ELSS investments are tax-free for gains up to ₹1 lakh in a financial year. If your gains exceed this ₹1 lakh limit, they are subject to a 10% LTCG tax, without any benefit of indexation.In addition to these tax benefits, investments in ELSS are eligible for deductions under Section 80C of the Income Tax Act. This section allows you to claim a tax deduction of up to ₹1.5 lakh on the total investments made in approved instruments like ELSS, PPF, NSC, etc. This makes ELSS not only a good option for long-term wealth creation but also an effective tax-saving tool.
How to invest in ELSS Funds?
Investing in the ELSS Mutual Fund is hassle-free when done through your Angel One account. You just have to follow these simple steps:
Step 1: Log in to your Angel One account.
Note: In case you do not have an account with Angel One, you can open a demat account with us in under a few minutes by submitting the necessary documents.
Step 2: Determine an ELSS fund that suits your needs and risk profile. You can learn more about each ELSS fund on the Angel One app. Things to consider at this stage are:
- Search for the fund you want to invest in.
- Analyse the fund’s past performance, tax incidence, and the sectors and companies it invests in. You can also calculate the potential returns using the calculator.
- Evaluate the fund’s level of risk, its ratings and expense ratio.
Step 3: Once you finalise the ELSS fund(s) you want to invest in, open your Angel One account, go to the Mutual Funds section, and look for it.
- Decide whether you want to invest via SIP or make a one-time investment
- Decide your monthly SIP date. Now, enter the amount you want to invest and choose the payment mode.
- After placing the order, you can create an AutoPay to make hassle-free future instalments in case of SIP investments.
Top 5 ELSS Funds
The following are some of the top 5 ELSS funds available in the market right now –
| Name of the fund | AUM (in ₹ crore) | Net Asset Value (NAV) (in ₹) | 3Y CAGR (%) | 5Y CAGR (%) |
| Motilal Oswal ELSS Tax Saver Fund – Direct Plan – Growth | 4,194.64 | 62.402 | 26.97% | 26.91% |
| SBI Long Term Equity Fund – Direct Plan – Growth | 28,732.52 | 476.435 | 25.05% | 27.01% |
| Sundaram Long Term Tax Advantage Fund – Series III – Direct Plan – Growth | 39.21 | 29.891 | 23.88% | 31.26% |
| Sundaram Long Term Tax Advantage Fund – Series IV – Direct Plan – Growth | 24.62 | 34.172 | 23.82% | 31.30% |
| SBI Long Term Advantage Fund – Series III – Direct Plan – Growth | 80.92 | 49.984 | 23.50% | 29.31% |
The above-mentioned top funds are for informational purposes only and are not recommendations. The funds are based on a 3-yr CAGR, which is subject to change frequently. Check out the real-time data on Angel One.
Motilal Oswal ELSS Tax Saver Fund – Direct Plan – Growth
With an AUM of ₹4,194.64 crore and an NAV of ₹62.402, this fund stands out for its impressive long-term growth. Offering a 3-year CAGR of 26.97% and a 5-year CAGR of 26.91%, it has proven its ability to deliver strong returns. Ideal for investors looking to build wealth while saving on taxes, this fund is backed by Motilal Oswal’s robust investment strategy, making it a solid option for those with a high risk appetite and a long-term horizon.
SBI Long Term Equity Fund – Direct Plan – Growth
One of the most popular ELSS funds, with a massive AUM of ₹28,732.52 crore and an NAV of ₹476.435, this fund has consistently delivered strong performance. Its 3-year CAGR stands at 25.05%, and its 5-year CAGR at 27.01%, making it a reliable choice for those seeking wealth creation along with tax-saving benefits under Section 80C. Managed by SBI’s experienced fund managers, this scheme appeals to investors aiming for balanced risk and high returns over the long term.
Sundaram Long Term Tax Advantage Fund – Series III – Direct Plan – Growth
This fund, with an AUM of ₹39.21 crore and an NAV of ₹29.891, is a strong contender in the ELSS space. Boasting a 3-year CAGR of 23.88% and a 5-year CAGR of 31.26%, it offers impressive growth while helping investors benefit from tax deductions. With its focus on long-term wealth creation and solid returns across market cycles, this fund is an excellent choice for investors looking for both tax savings and capital appreciation.
Sundaram Long Term Tax Advantage Fund – Series IV – Direct Plan – Growth
With an AUM of ₹24.62 crore and an NAV of ₹34.172, this fund offers excellent growth prospects, backed by a 3-year CAGR of 23.82% and a 5-year CAGR of 31.30%. The fund is designed for investors seeking to maximise tax savings while earning competitive returns. Sundaram’s prudent management style ensures the fund remains a reliable option for individuals targeting long-term wealth building through systematic investments.
SBI Long Term Advantage Fund – Series III – Direct Plan – Growth
This fund, offering an AUM of ₹80.92 crore and an NAV of ₹49.984, has provided steady growth with a 3-year CAGR of 23.50% and a 5-year CAGR of 29.31%. It is tailored for investors who prefer stable, long-term gains while also enjoying the tax benefits of an ELSS investment. The fund’s consistent performance makes it a sound choice for those aiming for disciplined, long-term equity exposure with tax-saving opportunities under Section 80C.
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