Best Tax Saving Mutual Funds to Invest in India

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If you’re looking for a type of mutual fund that lets you generate wealth while saving on taxes, Equity-Linked Savings Scheme (ELSS) is your best bet. This is the only type of mutual fund that lets you save up to Rs. 1.50 lakh on taxes under section 80C of the Income Tax Act,1961.

However, don’t be under the misconception that the only perk it offers is a tax deduction. It is one of the most versatile funds out there on the market, offering high returns.

ELSS mutual funds are open-ended and diversified funds. They have a lock-in period of 3 years, which is least when compared to some of the options like Public Provident Funds, fixed deposits, etc.

Mutual Funds

As beneficial as ELSS funds can be, they’re mostly high-risk funds. Thus, it’s always better to acquaint yourself thoroughly with these funds before you start. With that said, here’s a list of best ELSS funds to invest in India, followed by a little more useful information about ELSS funds you need to know before investing in them.

Top 5 Tax Saving Mutual Funds

Here’s a list of top 5 tax saving mutual funds India that you can consider.

Axis Long Term Equity Direct-G 24.1% 14.0% 14.3%
Aditya Birla SL Tax Relief 96 Direct-G 7.9% 8.7% 12.7%
Franklin India Taxshield Direct-G 9.8% 6.9% 9.9%
L&T Tax Adv Direct-G 3.0% 7.47% 9.9%
DSP Tax Saver Direct-G 22.5% 9.9% 12.9%

Note: As on October 23, 2019

This list is a compilation of well best ELSS funds in India. Please note this is just a list of best tax saving mutual funds based on their track record. It is advisable to select the best funds for yourselves based on your own research and goals.

How to Invest in ELSS Funds?

ELSS funds attract a majority of first-time investors who look for funds that can help them save on taxes and earn a little more. There’s so much to know when you invest in tax saving mutual funds. Among all the important aspects, it is quite important to identify what your financial goals are, and then make investments to achieve them.

You may have short-term or long-term financial goals. ELSS funds may not always be the right option for you despite the fact that they help save tax. One of the wrong reasons why so many people invest in ELSS funds is that they have a lock-in period of 3 years, which is the least when compared to other tax saving options.

However, redeeming your ELSS funds soon after 3 years might be a bad idea. Equity funds are highly volatile in the short term. If you invest in tax saving mutual funds like ELSS for 3 years and the market is volatile at that time, you’ll not be happy with the returns. However, ELSS funds are an amazing option if you have a time horizon of 5 to 8 years.

As already mentioned, ELSS funds come with an option of SIP- Systematic Investment Plan, where you can invest a fixed sum of money each month. Moreover, if you’re young, SIP can be the best option as it will help you make disciplined financial decisions.

Furthermore, in the case of equity funds like ELSS, the consistency in the performance of the funds matters more than AUM. For instance, the ELSS of ICICI Prudential Mutual Fund has been able to beat benchmarks by wide margins. So, see if the ELSS fund has been able to beat its benchmark through the highs and lows in the market.

Benefits of Investing in ELSS Funds

There are many reasons why ELSS is considered as the best tax saving option under Section 80C of the Income Tax Act, which are as follows.

SIP Option: Out of all the tax saving options, ELSS is the only type of fund that gives you the option of SIP. You can invest even a minimal amount of Rs. 500 each month.

Taxation: When compared with other investment options like fixed deposits in terms of taxation, ELSS is the best tax saving mutual funds because, besides being a tax-saving option, they also offer other tax benefits. Since the long-term capital gains up to Rs 1 lakh on ELSS become are free of tax, the returns on ELSS funds are partially taxable.

High Returns: Here again, when you compare ELSS with other tax-saving instruments, it yields better returns, which can be in the range of 15% to 18%.


Those were some of the best ELSS funds to invest in 2020. ELSS funds have so far been the best tax-saving option in mutual funds. Given you’re open to moderate to high risks, ELSS funds can help you not only in generating wealth but also grow your wealth at a faster pace. Do your research and see which funds have been performing consistently, and check the return in 5 years to invest in tax-saving mutual funds.

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