When it comes to tax saving and wealth creation, Equity-Linked Savings Schemes (ELSS) stand out as one of the most effective financial instruments. Not only do they help reduce your taxable income under Section 80C of the Income Tax Act, but they also have the potential to generate significant returns over time. In this blog, we will explore the best ELSS funds for tax saving and wealth creation, focusing on top-performing schemes, how to choose the right fund, and what makes ELSS a great investment option for 2025 and beyond.
What Are ELSS Funds?
ELSS funds are a type of tax-saving mutual fund that primarily invests in equities (stocks). These funds offer investors the dual benefit of tax deduction under Section 80C of the Income Tax Act and potential capital appreciation over the long term. The most significant feature of ELSS funds is their 3-year lock-in period, which is the shortest among all tax-saving instruments in India.
Why Choose ELSS Funds for Tax Saving and Wealth Creation?
Before diving into the best ELSS funds for 2025, let’s understand why ELSS funds are so popular for tax saving and long-term wealth creation:
Tax Benefits: ELSS investments qualify for a tax deduction of up to ₹1.5 lakh under Section 80C.
Potential for High Returns: Since ELSS funds invest in equities, they have the potential to deliver higher returns compared to traditional tax-saving instruments like PPF or fixed deposits.
Liquidity After 3 Years: Unlike other tax-saving instruments, ELSS funds have a lock-in period of just 3 years, which offers more liquidity.
Wealth Creation: With consistent investments over time, ELSS funds can build wealth due to the power of compounding and long-term equity market growth.
Now that we know why ELSS funds are a great option, let’s explore the best ELSS funds for tax saving and wealth creation in 2025.
Best ELSS Funds for Tax Saving and Wealth Creation in 2025
1. Axis Long Term Equity Fund
Axis Long Term Equity Fund is one of the top-performing ELSS mutual funds in India. The fund aims to provide long-term capital appreciation by investing predominantly in equity and equity-related instruments.
5-Year Return: 15.61% (as of 2023)
Expense Ratio: 0.60%
Minimum Investment: ₹500 (SIP)
Fund Manager: Shreyash Devalkar
Why Choose Axis Long Term Equity Fund?
Consistent Performance: Axis Long Term Equity Fund has delivered strong returns consistently over the last 5 years, making it a great option for tax-saving and wealth-building.
Experienced Fund Manager: Shreyash Devalkar brings years of experience in equity management, which adds credibility to the fund’s performance.
2. Mirae Asset Tax Saver Fund
The Mirae Asset Tax Saver Fund is another highly recommended ELSS fund that focuses on long-term capital appreciation through diversified equity investments.
5-Year Return: 14.75% (as of 2023)
Expense Ratio: 0.51%
Minimum Investment: ₹500 (SIP)
Fund Manager: Neelesh Surana
Why Choose Mirae Asset Tax Saver Fund?
Low Expense Ratio: This fund has a relatively low expense ratio, which ensures more of your money is working for you.
Strong Track Record: With impressive returns over the long term, Mirae Asset Tax Saver Fund is a top contender for tax-saving and wealth creation.
3. Aditya Birla Sun Life Tax Relief 96
Aditya Birla Sun Life Tax Relief 96 is one of the oldest and most trusted ELSS funds in the market. With its diverse portfolio, it aims to offer tax-saving benefits along with capital appreciation.
5-Year Return: 12.5% (as of 2023)
Expense Ratio: 1.91%
Minimum Investment: ₹500 (SIP)
Fund Manager: Vinod Bhat
Why Choose Aditya Birla Sun Life Tax Relief 96?
Long-Standing Reputation: As one of the oldest ELSS funds, it has built a strong reputation among investors.
Steady Returns: While not the highest returns in the market, it is a stable fund with low risk and reliable performance.
4. Kotak Tax Saver Fund
The Kotak Tax Saver Fund is a good choice for investors looking for a balance between risk and reward in their tax-saving investments.
5-Year Return: 13.65% (as of 2023)
Expense Ratio: 0.87%
Minimum Investment: ₹500 (SIP)
Fund Manager: Harish Krishnan
Why Choose Kotak Tax Saver Fund?
Balanced Investment Approach: The fund takes a balanced approach by investing in both large-cap and mid-cap stocks, which helps in managing risk while providing decent returns.
Solid Track Record: Kotak Tax Saver Fund has a strong track record of consistent performance.
5. Franklin India Taxshield
Franklin India Taxshield is one of the oldest and most reliable ELSS funds in the market, known for its steady returns and robust risk management approach.
5-Year Return: 13.02% (as of 2023)
Expense Ratio: 1.18%
Minimum Investment: ₹500 (SIP)
Fund Manager: Santosh Kamath
Why Choose Franklin India Taxshield?
Reputed Fund House: Franklin Templeton is a well-respected fund house with a strong global presence.
Consistent Performer: Over the years, Franklin India Taxshield has demonstrated a consistent performance record, making it a safe bet for long-term investors.
How to Choose the Right ELSS Fund for Tax Saving?
Choosing the right ELSS fund for tax saving can seem daunting with so many options available. Here are a few tips to help you select the best fund for your needs:
1. Consider Historical Performance
Look at the fund’s performance over the past 3, 5, and 10 years. A consistent track record of strong returns is a good indicator of the fund’s ability to generate wealth.
2. Expense Ratio
The expense ratio is the fee charged by the fund house for managing your investments. A lower expense ratio is preferable as it ensures more of your money is working for you.
3. Fund Manager’s Experience
The experience and track record of the fund manager can significantly impact the performance of the fund. Opt for funds managed by experienced professionals with a history of strong returns.
4. Risk Profile
Different funds have different risk levels. Make sure the fund aligns with your risk tolerance. If you are a conservative investor, consider a fund with a higher allocation to large-cap stocks.
5. Fund Size and Portfolio Composition
Consider the size of the fund and its portfolio. Larger funds may have more diversified portfolios, but smaller funds may be more agile and nimble in reacting to market conditions.
ELSS vs PPF: Which is Better for Tax Saving and Returns?
When comparing ELSS vs PPF (Public Provident Fund) for tax saving, it’s essential to understand their differences:
| Feature | ELSS Funds | PPF |
|---|---|---|
| Tax Deduction | Up to ₹1.5 lakh under Section 80C | Up to ₹1.5 lakh under Section 80C |
| Lock-In Period | 3 years | 15 years |
| Returns | Market-linked, higher potential | Fixed, guaranteed by government |
| Risk | Market risk (higher volatility) | Zero risk (government-backed) |
Verdict:
ELSS funds offer potentially higher returns but come with higher risk due to their market exposure.
PPF is a safer, government-backed option but offers lower returns.
FAQs About ELSS Funds
1. Which is the best ELSS fund for tax saving in 2025?
Some of the top-performing ELSS funds for 2025 include Axis Long Term Equity Fund, Mirae Asset Tax Saver Fund, and Kotak Tax Saver Fund. These funds have shown consistent performance over the years.
2. Are ELSS funds good for first-time investors?
Yes, ELSS funds can be a good choice for first-time investors, especially if they are looking for tax-saving benefits and long-term wealth creation. It’s crucial to choose funds with a solid track record and low risk.
3. What are the best ELSS funds with the highest returns over 5 years?
Some of the best ELSS funds with high returns over 5 years include Axis Long Term Equity Fund and Mirae Asset Tax Saver Fund, both of which have delivered returns above 14% annually.
4. How do I choose the right ELSS fund for tax saving?
To choose the best ELSS fund for tax saving, consider the fund’s historical performance, expense ratio, the experience of the fund manager, and its risk profile. Diversified funds with a mix of large-cap and mid-cap stocks are usually a good choice.
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