As the tax-filing season approaches in 2025, investors are actively seeking avenues to reduce their tax liabilities while also aiming for substantial returns. Equity Linked Savings Schemes (ELSS) have emerged as a popular choice, offering a dual benefit of tax savings under Section 80C of the Income Tax Act and the potential for long-term capital appreciation. With the deadline for tax-saving investments fast approaching, let's explore the top 5 ELSS funds that have demonstrated impressive performance, delivering returns of up to 28% over the past 3 years.
Understanding ELSS Funds
ELSS funds are essentially equity mutual funds with a lock-in period of three years, the shortest among all tax-saving investment options. These funds invest a significant portion, typically over 80%, of their assets in equity and equity-related instruments. This equity focus allows them to generate potentially higher returns compared to traditional fixed-income tax-saving options. However, it's important to remember that ELSS investments are subject to market risks.
Key Benefits of ELSS Funds
- Tax Savings: Investments in ELSS qualify for tax deductions of up to ₹1.5 lakh under Section 80C of the Income Tax Act, helping to reduce your taxable income and save up to ₹46,800 if you fall in the 30% tax bracket.
- Potential for High Returns: Due to their equity focus, ELSS funds offer the potential for generating higher returns than other tax-saving instruments, especially over the long term.
- Shorter Lock-in Period: Compared to other tax-saving options like Public Provident Fund (PPF) or National Savings Certificate (NSC), ELSS funds have the shortest lock-in period of just three years, providing relatively quicker access to your funds.
- SIP Option: Investors can choose to invest in ELSS funds through Systematic Investment Plans (SIPs), allowing for disciplined, regular investing and reducing the risk of market timing.
Top Performing ELSS Funds
Here are some of the top ELSS funds that have delivered impressive returns in the past 3 years:
- Motilal Oswal ELSS Tax Saver Fund: This fund has consistently delivered strong performance, with a 3-year return of around 27.51%. The fund's success is attributed to its active management and superior stock selection, reflected in its high alpha value of 3.58.
- SBI Long Term Equity Fund: Another top performer, this fund has also demonstrated strong outperformance. The SBI ELSS Tax Saver Fund has given 24.41% annualized returns in the past three years.
- HDFC ELSS Tax Saver Fund: This fund is a popular choice among investors, offering consistent returns and a well-diversified portfolio. The HDFC ELSS Tax Saver Fund has given 22.08% annualized returns in the past three years.
- DSP ELSS Tax Saver Fund: Known for its focus on quality stocks and risk management, this fund has delivered steady returns over the past few years.
- Bank of India ELSS Tax Saver Fund: This fund has also shown promising performance, making it a worthwhile option for investors seeking tax savings and growth.
Considerations Before Investing
- Risk Tolerance: ELSS funds invest in equities and carry market risk. Assess your risk tolerance and investment horizon before investing.
- Fund Performance: While past performance is not indicative of future results, it's essential to analyze a fund's historical performance, consistency, and risk-adjusted returns.
- Fund Manager: Research the fund manager's experience, investment strategy, and track record.
- Expense Ratio: Consider the fund's expense ratio, which is the annual fee charged to manage the fund. A lower expense ratio can positively impact your returns.
Disclaimer: Mutual fund investments are subject to market risks. Read all scheme-related documents carefully before investing.
