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Best Tax Saving ELSS Mutual Funds in 2023

10 January 20246 mins read by Angel One
Investing under ELSS allows you to deduct taxes paid by up to ₹ 1.5 lakh per annum. Read the following article to know more about how to invest money that would have been otherwise paid as taxes.
Best Tax Saving ELSS Mutual Funds in 2023
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With the current tax slabs imposing a 30% income tax on income above  ₹ 15 lakh per year, many Indian salary earners see almost a third of their hard earned money being taken away. However, the current tax regime also offers some avenues whereby the taxpayer can reduce the burden of taxes and actually replace it with an instrument that generates inflation-beating returns.

Such an arrangement can be leveraged through the provisions under Section 80C of the Income Tax Act. This provision allows for tax deduction of up to ₹ 1.5 lakh for investments in ELSS mutual funds. Therefore, many salary earners immediately start investing in such tax saving mutual funds covered under Section 80C after their first salary itself. If saving from taxes interests you, then you too can invest under a tax saving mutual fund or ELSS.

Read More About Tax on Mutual Funds

What is ELSS

ELSS or Equity Linked Savings Scheme are basically tax saving funds that invest the majority of their fund in equity – which makes them more risky than debt funds and especially riskier than individual fixed income instruments such as bonds, public provident fund or National Savings Certificates. There are no guaranteed returns per se in ELSS funds. But there exists a lock-in period of 3 years.

However, as a result, their returns can also be higher than in the debt market as well. In fact, the average returns in the last 10 years from ELSS has been 15% per annum.

Why invest in ELSS

The following are the reasons why any investor should seriously consider investing in ELSS –

  1. Higher returns – As mentioned above, ELSS gives around 15% returns per year. In comparison, fixed deposits (FDs) give 4 to 6%, public provident fund (PPF) and National Savings Certificate (NSC) gives 7 to 8%.
  2. Lower lock-in period – ELSS have a lock-in period of only 3 years. In comparison, FDs have a lock-in period of 3 to 5 years, PPF of 15 years (though partial withdrawal is available after 6 years), NSC of 5 years etc. However investing in equity based funds should be a long term investment and thus, you should not withdraw your ELSS investments right away after the end of the lock-in period.
  3. Tax deduction – While income from ELSS is only partially taxable (the amount of up to ₹ 1.5 lakh is actually deducted from taxes), the income from FD, NSC are taxable. Only PPF offers income that is free from taxation. 
  4. Minimum effort – Unlike stock trading where you may feel too stressed to keep making investment decisions on a regular basis and tracking your portfolio, in the case of ELSS or any other mutual fund for that matter, you do not have to worry about each individual investment. All you have to do is track the returns being actually bright to you by the fund managers and compare them to returns provided by other fund managers.

In short, of all the tax saving instruments available to an average Indian, the ELSS tax saving instrument gives the highest return at minimum effort.

List of best tax saving mutual funds

The following are some of the best ELSS funds available in the market today –

Name of the fund 3 Year CAGR Lifetime CAGR
IDFC Tax Advantage ELSS Fund 21.8% 18%
Bank of India Tax Advantage Fund 21.6% 18.1%
Canara Robeco Equity Tax Saver Fund 18.9% 19.2%
Quant Tax Plan 37% 15%%
DSP Tax Saver Fund 17.1% 14.3%
Mirae Asset Tax Saver Fund 17.2% 17.5%
PGIM India ELSS Tax Saver Fund 18.5% 13.7%
SBI Magnum Long Term Equity Scheme 17.7% 11.2%
Kotak Tax Saver Scheme 16.8% 12.6%
Union Long Term Equity Fund 17.8% 14%

Factors to consider before ELSS investment

Make sure you understand the following aspects well before committing your funds to ELSS mutual funds – 

  1. Investment timeline – If you may need the cash in the next 1 to 2 years, then do not commit a large amount of money to not just ELSS but also any other investment avenue with a lock-in period.
  2. Returns – If you want truly high returns, then you have to be able to commit to the investment for 5 years or more. This is because, the compounding process brings the truly high returns only in the later stages of investment. 

Final words

ELSS is a great point of entry for many first time investors. The mandatory lock-in period of 3 years helps them get used to the market volatility. Therefore, if you are not yet confident of being able to invest in the stock market on your own, you can choose to invest in an ELSS, observe how the markets work and then start investing yourself. Hopefully this will be only the first among many different tax saver investment opportunities that you will invest in. 

If you do not have a demat account (necessary for investing in stocks), open demat account today with Angel One, India’s trusted stock broker!

Disclaimer: This article has been written exclusively for educational purposes. The securities quoted are only examples and not recommendations

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