As an investor in India, you’ve been trained to look both left and right at your tax-saving options: PPF, NSC, fixed deposits, maybe even NPS. But in a world of inflation ticking at — conservatively — 5 to 6% per annum, earning just 7 to 8% on your safe instruments means you’re barely keeping pace with the cost of living. That’s why exploring the best ELSS Mutual Funds in India deserves your full attention in 2025. These Equity Linked Savings Schemes (ELSS) combine tax relief, equity exposure, and a three-year lock-in — a unique blend that might just be the best tax-saver and wealth-builder you’ll find under one roof.
This article walks you through what ELSS funds are, why they matter, which ones have stood out, how to evaluate them, and how you — as an intelligent investor — can make them work for your portfolio.
What Are ELSS Funds, and Why Do They Still Matter?
An ELSS is a category of mutual fund that commits at least 80% of its investments to equities and equity-related instruments, and in return offers a tax deduction under Section 80C of the Income Tax Act (up to INR 1.5 lakh per financial year). What makes it special:
- The lock-in is just three years — the shortest among the tax-saving instruments under 80C (compare this with PPF’s 15 years or NSC’s 5 years).
- Because it invests in equities, it has the potential to out-run inflation and build real wealth over time.
- When used well, it doubles as both a tax-saver and a growth engine.
Consider the arithmetic: If you invest INR 1.5 lakh each year for five years in an average ELSS delivering, say, 14% annualised return, you could convert that into a corpus significantly larger than investing the same amount in PPF at 7%. According to industry data, ELSS category funds have delivered returns of approximately 18-22% per annum over the recent 3- and 5-year horizons.
In fact, one major mutual-fund blog states the 3- and 10-year annualised returns of ELSS were 18.43% and 15.26%, respectively. It’s this combination of tax deduction + equity growth + relatively short lock-in that makes ELSS so interesting — and so often under-utilised.
How ELSS Mutual Funds Work in Practice
At their core, ELSS funds function in much the same way as regular diversified equity mutual funds — but with a twist. The fund manager invests across large-cap, mid-cap and small-cap stocks (depending on the scheme’s mandate), while aiming for long-term capital appreciation. The three-year lock-in means that each investment you make is tied up for at least that period, which means the fund has fewer redemption pressures and can focus on genuine equity holdings rather than short-term trading.
For example, many best ELSS funds in India spread their allocations roughly as 65-80% equities and the remainder in short-term debt or cash for liquidity. Their objective: to maximise returns while maintaining discipline. Because you can’t redeem for three years, the fund can “ride the cycle” a little more, which in my view gives a structural edge. Some industry commentary notes that even when you factor in post-tax returns, ELSS often outperforms other tax-saving instruments.
From an investor’s perspective: you pick a fund, do the KYC, invest either in lumpsum or via SIP (systematic investment plan) and then hold (with patience) for at least three years. After that, you can redeem — although many investors continue holding because equities work best when given time.
Key Features & Advantages of ELSS Funds
When evaluating ELSS funds, three features jump out — and these define why they are a unique category in India’s tax-saving/investment landscape.
| Feature | Detail | Why it matters |
|---|---|---|
| Lock-in of 3 years | ELSS funds carry a mandatory three-year lock-in from the date of investment. | Shortest among major tax-saving instruments (for example, PPF is 15 years). That gives relative liquidity while retaining tax benefits. |
| Minimum ~80% equity exposure | Regulation mandates that at least ~80% of the corpus is invested in equity and equity-related instruments. | Enables ELSS to participate in the growth of Indian equity markets — unlike pure debt tax-saver options. |
| Tax deduction + growth opportunity | Eligible for tax deduction under Section 80C (up to INR 1.5 lakh investment) + potential market-linked returns. | Dual benefit: lowers taxable income and builds wealth over time. |
Additional advantages:
- Flexibility of investment mode: SIP (Systematic Investment Plan) or lump sum.
- Diversification across sectors and market capitalisations (large/mid/small) is built into many ELSS portfolios.
- Compounding potential: Over a 5-10 year horizon, the equity exposure gives ELSS a chance to outperform fixed income alternatives.
- Lower exit barrier post lock-in: Once 3 years are up, investors can redeem or stay invested.
Together, these features position ELSS as a compelling bridge between tax-saving and wealth-creation.
Best ELSS Mutual Funds in India for 2025
Below is a table rendered using recent performance data (1-year, 3-year, 5-year returns, and AUM) for top ELSS funds. These are illustrative and not a recommendation.
| Fund Name | AUM Cr | Returns 1Yr % | 3Yr CAGR% | 5Yr CAGR% |
|---|---|---|---|---|
| SBI Long Term Advnt Fd Series V Dir Gr | 382.2 | 13.37 | 23.46 | 25.4 |
| SBI Long Term Advnt Fd Series V Reg Gr | 382.2 | 12.96 | 23 | 24.92 |
| HDFC ELSS TaxSaver Dir Gr | 16,600.0 | 9.94 | 22.75 | 26.93 |
| Mirae Asset ELSS Tax Saver Dir Gr | 25,900.0 | 9.94 | 19.51 | 22.61 |
| HDFC ELSS TaxSaver Gr | 16,600.0 | 9.26 | 22 | 26.16 |
| Mirae Asset ELSS Tax Saver Reg Gr | 25,900.0 | 8.89 | 18.31 | 21.24 |
| Aditya BSL ELSS Tax Saver Dir Gr | 15,200.0 | 8.79 | 16.38 | 15.65 |
| WhiteOak Capital ELSS Tax Saver DirGr | 414.3 | 8.62 | 22.62 | |
| Aditya BSL ELSS Tax Saver Gr | 15,200.0 | 8.01 | 15.51 | 14.75 |
| Parag Parikh ELSS Tax Saver Dir Gr | 5,638.8 | 7.84 | 18.38 | 22.73 |
| ICICI Pru ELSS Tax Saver Dir Gr | 14,400.0 | 7.82 | 17.46 | 22.3 |
| PGIM India ELSS Tax Saver Dir Gr | 757.5 | 7.52 | 15.01 | 21.85 |
| Sundaram ELSS Tax Saver Dir Gr | 1,356.0 | 7.38 | 16.02 | 21.31 |
| Mahindra Manulife ELSS TaxSaverDirGr | 942.3 | 7.24 | 17.13 | 22.87 |
| ICICI Pru ELSS Tax Saver Gr | 14,400.0 | 7.15 | 16.72 | 21.5 |
| ITI ELSS Tax Saver Dir Gr | 409.2 | 6.89 | 23.45 | 22.69 |
| WhiteOak Capital ELSS Tax Saver RegGr | 414.3 | 6.84 | 20.54 | |
| Sundaram ELSS Tax Saver Reg Gr | 1,356.0 | 6.82 | 15.39 | 20.64 |
| Sundaram Value Direct Growth | 1,442.0 | 6.74 | 14.08 | 19.8 |
| Parag Parikh ELSS Tax Saver Reg Gr | 5,638.8 | 6.66 | 17.05 | 21.28 |
| Edelweiss ELSS Tax saver Dir Gr | 417.1 | 6.39 | 18.77 | 21.82 |
| Baroda BNP P ELSS Tax Saver Dir Gr | 896.1 | 6.36 | 20.49 | 20.24 |
| Sundaram Value Growth | 1,442.0 | 6.19 | 13.46 | 19.14 |
| HSBC ELSS Tax saver Dir Gr | 4,088.0 | 6.14 | 21.03 | 21.74 |
| PGIM India ELSS Tax Saver Reg Gr | 757.5 | 5.93 | 13.31 | 20.14 |
| Axis ELSS Tax Saver Fd Dir Gr | 34,300.0 | 5.93 | 15.29 | 16.27 |
| Union ELSS Tax Saver Dir Gr | 895.2 | 5.74 | 17.1 | 21.57 |
| Mahindra Manulife ELSS TaxSaverRegGr | 942.3 | 5.59 | 15.27 | 20.88 |
| Nippon India ELSS Tax Saver DirGr | 15,100.0 | 5.42 | 19.27 | 24.51 |
| Bandhan ELSS Tax saver Dir Gr | 6,947.8 | 5.34 | 17.2 | 25.18 |
| HSBC ELSS Tax saver Gr | 4,088.0 | 5.33 | 20.08 | 20.81 |
| Axis ELSS Tax Saver Fd Gr | 34,300.0 | 5.16 | 14.42 | 15.36 |
| Canara Robeco ELSS Tax Saver Dir Gr | 8,799.0 | 5.15 | 16.86 | 21.06 |
| Baroda BNP P ELSS Tax Saver Reg Gr | 896.1 | 5.09 | 19.05 | 18.77 |
| DSP ELSS Tax Saver Dir Gr | 16,700.0 | 5.01 | 21.05 | 24.8 |
| ITI ELSS Tax Saver Reg Gr | 409.2 | 4.98 | 21.23 | 20.32 |
| Union ELSS Tax Saver Gr | 895.2 | 4.79 | 16.05 | 20.58 |
| Franklin India ELSS Tax Saver Dir Gr | 6,531.4 | 4.72 | 19.75 | 25.02 |
| Nippon India ELSS Tax Saver Gr | 15,100.0 | 4.71 | 18.47 | 23.65 |
| Edelweiss ELSS Tax saver Gr | 417.1 | 4.67 | 16.83 | 19.8 |
| LIC MF ELSS Tax Saver Dir Gr | 1,087.0 | 4.54 | 16.92 | 19.76 |
| Tata ELSS Dir Gr | 4,549.8 | 4.45 | 17.39 | 21.8 |
| SBI ELSS Tax Saver Dir Gr | 30,400.0 | 4.43 | 24.98 | 26.55 |
| Bandhan ELSS Tax saver Reg Gr | 6,947.8 | 4.2 | 15.89 | 23.77 |
| DSP ELSS Tax Saver Reg Gr | 16,700.0 | 4.05 | 19.93 | 23.64 |
| Canara Robeco ELSS Tax Saver Reg Gr | 8,799.0 | 3.96 | 15.49 | 19.59 |
| Franklin India ELSS Tax Saver Gr | 6,531.4 | 3.89 | 18.77 | 24 |
| SBI ELSS Tax Saver Reg Gr | 30,400.0 | 3.77 | 24.15 | 25.73 |
| UTI ELSS Tax Saver Dir Gr | 3,678.4 | 3.6 | 14.69 | 19.46 |
| Invesco India ELSS Tax Saver Fund Dir Gr | 2,792.8 | 3.37 | 19.51 | 20.6 |
| LIC MF ELSS Tax Saver ELSS Gr | 1,087.0 | 3.31 | 15.59 | 18.36 |
| Tata ELSS Reg Gr | 4,549.8 | 3.3 | 16.07 | 20.37 |
| Kotak ELSS Tax Saver Dir Gr | 6,278.4 | 3.01 | 17.56 | 22.16 |
| UTI ELSS Tax Saver Reg Gr | 3,678.4 | 2.59 | 13.53 | 18.28 |
| Invesco India ELSS Tax Saver Fund Gr | 2,792.8 | 2.21 | 18.13 | 19.15 |
| Motilal Oswal ELSS Tax Saver Dir Gr | 4,376.9 | 1.92 | 26.94 | 27.32 |
| Kotak ELSS Tax Saver Reg Gr | 6,278.4 | 1.86 | 16.14 | 20.63 |
| Quant ELSS Tax Saver Dir Gr | 11,900.0 | 1 | 17.07 | 28.9 |
| Motilal Oswal ELSS Tax Saver Reg Gr | 4,376.9 | 0.73 | 25.43 | 25.78 |
| Quant ELSS Tax Save rGr | 11,900.0 | -0.12 | 15.73 | 27.02 |
| Bank of India ELSS Tax Saver Dir Gr | 1,374.6 | -1.3 | 18.89 | 22.63 |
| Bank of India ELSS Tax Saver Eco Gr | 1,374.6 | -2.2 | 17.88 | 21.64 |
| Bank of India ELSS Tax Saver Reg Gr | 1,374.6 | -2.45 | 17.56 | 21.29 |
When you shortlist the list of top 10 ELSS funds and decide to invest, it is advisable to review not only returns but also consistency, fund house credibility, manager tenure and how the fund’s style matches your risk profile.
How to Pick the Right ELSS Funds
Having covered what ELSS are and why their numbers appeal, the next step is: how do you pick the right one?
- Fund strategy & tilt – Is the fund predominantly large-cap or mid/small-cap oriented? If you have lower risk tolerance, a large-cap tilt is better; if you can accept volatility, a mid/small-cap blend might deliver higher returns.
- Expense ratio (Direct plan) – Lower cost means more of your money is working. Many top funds list costs under 1% in the direct plan.
- Performance consistency & risk-adjusted metrics – Look beyond top headline returns: check Sharpe ratio (higher is better), alpha (positive indicates outperformance), rolling 3- and 5-year returns. For example, one dataset shows Parag Parikh ELSS with a strong Sharpe of ~1.14.
- Fund size and maturity – A large AUM (assets under management) often confers stability; older fund houses have track record disciplines.
- Manager tenure & discipline – Has the fund manager stuck to the investment philosophy, or has the style drifted into riskier territory?
- Investment horizon & conviction – For ELSS, you must accept the three-year lock-in and ideally hold longer. If you’re investing with a 5- to 7-year horizon (or more), you’re in the right frame of mind.
By applying this checklist, you’re not simply picking yesterday’s winner; you’re aligning your selection with your risk profile, cost control, and long-term goal.
Taxation, Risks, and Whether It’s Right for You
Taxation
The key tax benefits: you invest up to INR 1.5 lakh and claim a deduction under Section 80C — effectively reducing your taxable income. And while the lock-in is three years, post-lock-in the gains qualify for Long-Term Capital Gains (LTCG) treatment: gains up to INR 1 lakh per financial year are tax-free, and above that are taxed at 10% (with no indexation). Several sources quote the average category return at ~22.46% over 5 years.
For the investor in the 30% tax bracket, that deduction translates into a potential ~INR 45,000+ tax saving per annum. Combine that with higher net returns via compounding, and you get a compelling case.
Risks
- Market risk: These are equity funds, so NAVs fluctuate and short-term losses are possible.
- Liquidity risk: Until the years are up, you cannot redeem. Plan accordingly.
- Event/concentration risk: Some funds may lean more heavily into mid or small-caps or be sector-tilted, which increases risk of sharp drawdowns.
- Behavioural risk: Investors who redeem too early or treat ELSS like a fixed deposit miss the growth advantage.
Who Should Invest?
- Salaried professionals who are paying tax and want more than a safe fixed income.
- New investors with a 5-7 year horizon who want to get introduced to equities via a tax-efficient route.
- Long-term goal planners (child’s education, retirement, etc.) are willing to accept some risk for a higher reward.
If your horizon is under 3 years, or you can’t stomach volatility, you may be better elsewhere.
Executing the Strategy
How to Invest in ELSS Funds
Today, the investments are seamless: choose a direct-plan ELSS via an online platform (many with a minimum of INR 500 SIP). Complete your e-KYC (PAN, Aadhaar, bank account), select the direct growth option, choose SIP or lumpsum, and track your holdings. For example, platforms like those that host many ELSS schemes highlight minimums of around INR 500 for both lumpsum and SIP.
Remember: each SIP instalment has its own three-year lock-in — so your ability to redeem depends on the date you invested.
Strategy for Upcoming Years
Given the data and market context: Indian equities supported by structural growth, rising investor participation and a bullish medium-term outlook — here’s a pragmatic strategy:
- Allocate 10-15% of your total portfolio to ELSS (if you already have equity exposure elsewhere).
- Prefer direct-plan growth options to minimise cost.
- Use SIPs to take advantage of rupee cost averaging (especially given equity volatility).
- Re-evaluate your fund choices annually: check if they still align with their stated strategy and if their performance remains consistent.
- Hold for at least 5 years (though lock-in is 3) to maximise compounding.
And finally:
In a world where budget pressures, inflation and taxes eat into real returns, ELSS stands out as India’s best-in-class tax-saving investment with an equity edge.
When past data shows many schemes delivering over 20% annualised returns over five years, and when the alternative safe instruments struggle to even provide real (inflation-adjusted) returns, the case becomes unmistakable.
Final Takeaway
If you’re an investor who is ready to commit, ready to hold for a few years, and eager to make your tax-saving investments work harder, then ELSS funds are not just a tool to “save tax” but a gateway to wealth creation.
The data shows that you don’t have to settle for mediocre returns. You just need the right fund, cost discipline, time and patience. For the year ahead, the elite ELSS funds — those boasting 5-year annualised returns in the 20-30% range — are waiting for investors who are ready to let compounding do its job.
Begin with clarity, pick wisely, stay patient, and let your ELSS investment work as the quiet builder of your long-term financial future.