ELSS Mutual Fund - What is ELSS Fund & Invest in Best ELSS Funds for Tax Saving
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When discussing investment opportunities, you often seek avenues that promise wealth generation and provide avenues for regular returns and tax savings. While the market offers an array of investment schemes, many of them subject returns to taxation under the prevailing income tax rules. This is where ELSS Mutual Funds emerge as a unique and compelling option.

ELSS Mutual Funds represent a distinct category within the investment spectrum. They offer investors the dual benefit of wealth creation potential through equity market participation and tax savings under Section 80C of the Income Tax Act in India. But the question arises: What are ELSS Mutual Funds? Read this article to know more about the ELSS mutual funds and why you should invest in them.

What is the ELSS Fund?

ELSS (Equity Linked Savings Scheme) funds are a category of equity mutual funds that predominantly allocate a significant portion of their assets into equity. ELSS funds are also commonly referred to as tax-saving schemes due to their unique tax benefits. These schemes provide tax exemptions of up to INR 1,50,000 per the taxable income slab under Section 80C of the Income Tax Act.

List of ELSS Mutual Funds

  • List kotak recommended funds

    Below is the diverse range of Equity Linked Savings Schemes (ELSS) Mutual Funds, carefully curated to provide tax benefits and long-term wealth creation opportunities:

    • Kotak ELSS Tax Saver Fund: Offers tax-saving benefits with 21.05% CAGR returns but carries high risk.
    • DSP Tax Saver Fund: Diversified across market caps with 17.89% CAGR returns and very high risk.
    • Mirae Asset Tax Saver Fund: Focuses on providing tax benefits with a diversified portfolio of equities with 20.15% CAGR returns
Mutual Fund 3-Year Return 5-Year Return
DSP Tax Saver Fund 25.16% 18.06%
Kotak Taxsaver 23.78% 17.69%
Mirae Asset Tax Saver Fund 22.74% 18.34%

This table provides a quick overview of the 3-year and 5-year returns for the DSP Tax Saver Fund, Kotak Tax saver, and Mirae Asset Tax Saver Fund. Investors can use this information as part of their research when considering these mutual funds.

Features of ELSS Mutual Funds

ELSS mutual funds offer several features. Some of them are:

  • A Minimum of 80% of the total investible corpus is in equity and equity-related instruments.
  • Diversified equity investments across various market capitalisations, themes, and sectors.
  • There is no maximum investment tenure but a mandatory 3-year lock-in period.
  • Tax exemption under Section 80C of the Income Tax Act.
  • Income is treated as LTCG and taxed according to prevailing tax regulations.

How Does ELSS Funds Work?

ELSS funds function as equity funds with diverse portfolios, investing predominantly in publicly traded company stocks across different market capitalisations and industries. Fund managers conduct market research to select stocks to maximise long-term wealth appreciation.

Moreover, investments in ELSS funds qualify for tax deductions under Section 80C of the Income Tax Act, allowing investors to save up to Rs 1.5 lakh annually. This tax-saving feature, coupled with the potential for capital growth, makes ELSS funds an attractive investment option for those seeking to optimise returns while reducing tax liabilities.

How Should You Invest in an ELSS Fund?

  • Through Online Investment Platforms: Many online investment platforms or mutual fund aggregators offer the option to invest in ELSS funds. These platforms provide a convenient way to browse different ELSS options, compare their features, and invest online.
  • Systematic Investment Plan (SIP): You can invest in ELSS funds through a SIP, where you invest a fixed amount regularly (monthly, quarterly, etc.). SIPs help in averaging the cost of investment over time and are suitable for investors looking to invest systematically.
  • Offline Channels: You can also invest in ELSS funds through traditional offline channels like banks, financial institutions, or registered agents of mutual fund companies.

Tax Benefits Offered by ELSS Mutual Funds

Section 80C of the Income Tax Act provides tax deduction benefits on the principal amount invested in an ELSS scheme. This deduction is cumulative, allowing you to claim a tax benefit of up to ₹1.5 lakh under Section 80C for investments in various specified instruments, including ELSS, NSC, and PPF, among others.

Additionally, ELSS schemes come with a compulsory lock-in period of 3 years. Consequently, when you redeem the units, you receive long-term capital gains. These gains are tax-free, up to ₹1 lakh within a single financial year. Any LTCG exceeding this threshold is subject to a 10% tax on gains exceeding ₹ 1 lakh.

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Why should you invest in Tax-Saving Mutual Funds?

Investing in tax-saving mutual funds can be an intelligent choice because of the following reasons:

1. Diversification

ELSS funds diversify investments across a wide spectrum of companies, from small-cap to large-cap, spanning various sectors, enhancing portfolio diversification.

2. Low Entry Point

The best tax-saving mutual funds allow investors to begin with as little as Rs. 500, enabling early investment without requiring a substantial corpus.

3. SIP Convenience

While lump-sum investments are an option, most investors prefer the SIP approach, allowing them to invest small amounts regularly, gain tax benefits, and harness wealth-building opportunities.

4. Flexible Investment

You can invest as much as you desire, but tax benefits are subject to the limits defined by Section 80C of the Income Tax Act. Moreover, you can remain invested beyond the mandatory 3-year lock-in period indefinitely.

Factors to Consider Before Investing in the Best Mutual Funds for Tax Saving

When venturing into tax-saving mutual funds, weighing several vital factors to make informed investment decisions is crucial. Here are four essential aspects to consider:

1. Risk Tolerance

Assess your comfort level with risk. Some funds carry higher risks but may offer potentially higher returns, while others are more conservative.

2. Fund Performance

Look at the historical performance for locating the best ELSS mutual fund. Past performance doesn't guarantee future returns, but it can show how the fund has fared over time.

3. Expense Ratio

Look at the fund's expense ratio to identify the best mutual funds for tax saving. Lower expenses mean more of your returns are left in your pocket.

4. Exit Load

Check for an exit load or penalty for withdrawing your money before a specific period. Some funds charge if you withdraw too soon.


ELSS offers an attractive avenue for tax-saving and wealth creation in India. It is important to assess your financial goals and risk tolerance and choose a fund that aligns with your investment approach to invest in the best ELSS funds.

ELSS tax saving funds are valuable for long-term investors looking to optimise their tax liabilities while building a robust investment portfolio. Make informed decisions, diversify your investments, and consult with a financial advisor if needed to make the most of your ELSS investment journey.

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.