ELSS Mutual Fund | Prudent Tax Saver in 2025

The Equity Linked Savings Schemes or the ELSS Mutual Fund is among the most extensively discussed tax-saving mutual funds in India because of its comparative merit or equity exposure and tax savings what with the fact that this is a well disciplined mutual fund. With the shift in tax structure and the rise in investment tools in the year 2025, one question that can only come to mind is whether ELSS should still be considered as the most effective way to save tax and build wealth.

What is ELSS mutual fund?

An ELSS Mutual Fund is a type of equity fund that invests primarily in diversified stocks and offers tax deductions under Section 80C of the Income Tax Act. Investors can claim up to ₹1.5 lakh annually, saving as much as ₹46,800 in taxes under the old regime. These funds come with a mandatory ELSS lock-in period of just three years — the shortest among all 80C instruments.

Benefits of ELSS Mutual Funds

• Tax Deduction—ELSS

It is ideal portfolio allocation in case of salaried employee and professionals with objective of minimising outflow of tax as investments in ELSS turn out to be 80C deductive.

• Shorter Lock-In time

One cannot expect the liquidity of ELSS to be compromised despite such a small lock-in of 3 years. It is better than PPF (15 years), tax-saving FDs and EE Post Office Savings (5 years).

• High Return Potential

Being ELSS market-oriented funds, their performance in the long-run will probably surpass inflation with another source of income such as fixed-income.

• Investment Discipline with Sips

When investing in SIP of equity-linked saving scheme (ELSS), the investor can avail of the rupee cost averaging and wealth building which he does not have to time the market.

Best ELSS Funds in 2025

These are the top ELSS funds 2025 in terms of recent returns:

Fund	3-year CAGR	5-year CAGR	10-year CAGR
Quant ELSS Tax Saver Fund	20.58%	33.06%	15.28%
Mirae Asset Tax Saver Plan	21.16%	24.97%	18.12%
Canara Robeco Equity Tax Saver	20.70%	22.99%	14.38%
Kotak Tax Saver Fund	18.93%	23.61%	14.16%
DSP Tax Saver Fund	25.24%	25.86%	16%

Selecting the Best ELSS Fund in the Year 2025

Anyone wishing to invest in the best tax-saving ELSS mutual funds in 2025 can look at short-term returns, but that is not all. A combination of the past performance of the funds, fund manager consistency, expense ratio, diversification, and volatility-adjusted figures should be taken into account by investors in order to make a competent decision.

The initial step would be to review the history of ELSS funds, preferably by considering CAGR over 3 years and 5 years, to know the performance of a fund over various cycles. A fund that has been able to provide consistent returns and not only in the times of bull runs, has a solid underlying management. Experience and stability of fund managers are essential because a high level of competency and strength within the management is usually a sign of a well-behaved approach and future success.

It is also worth noting the expense ratio, particularly in a time of tight returns. The reduced fees to run your funds will make sure that more of your generated returns remain in your pocket. Moreover, consider portfolio diversification; a well-diversified ELSS fund will have exposure to different sectors and market capitalisations (large-cap, mid-cap, and small-cap), and that will help to reduce concentration risk.

To add some more sense of reliability, look at risk-based indicators of performance such as the Sharpe Ratio and rolling returns of the fund. These statistics reflect the consistent manner in which the fund has performed across several timeframes, blowing away the clatter of one-time spikes or declines.

Should You Keep Your ELSS Investments?

Among the most frequently asked questions among investors by shifting to the new tax regime is whether to continue investing in ELSS funds or not. All this is determined by performance. Although ELSS funds lack the tax component, they are good investment even when considered as equity mutual funds without the tax advantages.

What about trailing returns within the categories of equity? In the 10 years period, the ELSS funds have given a return of 15.23 per year on average. This is how at this pace, an investment of 10 years ago would have multiplied almost by four times. This creates a very attractive opportunity that ELSS has in addition to its tax-saving.

The 3-year, 5-year and 10-year trailing returns of various equity categories are as follows in comparison:

Category	3 year	5 year	10 year
Large & Midcap	29.05%	11.59%	15.94%
ELSS	27.13%	10.83%	15.23%
Focused Funds	26.51%	10.94%	15.15%
Flexi Cap	26.39%	11.43%	14.88%
Aggressive Hybrid	22.67%	10.40%	13.62%
Large Cap	24.37%	10.94%	13.58%

These values indicate that ELSS mutual funds have been performing fairly well over periods, similar to the like of flexi-cap and focused funds. Thus, do not hurry too much to redeem your existing ELSS investment when investments are not giving volatile returns. As a matter of fact, staying invested may only compound your profits further- particularly, in case this is not just a pure tax-saving scheme, but a long-term equity product.

But what you can consider doing is, in case your ELSS scheme has been performing dismally over a period of more than 2 years and is also performing below the category averages or the benchmark index, it would only be prudent to switch to a better-performing fund, after your mandatory 3-year lock-in.

ELSS Mutual Funds Taxation

Though the tax benefit under Section 80C is the primary benefit in ELSS investment (with the old tax regime), it is also wise to be aware on how the returns are taxed. As an investment, ELSS will be regarded as a long-term capital gain (LTCG) and will attract the tax of 10 per cent on any gain in excess of 1 lakh in a financial year without providing any indexation benefit as in case of LTCG. The gain made till 1 lakh rupees is not taxable.

Moreover, the pay out received in ELSS mutual funds has been made taxable at your rates of income taxes now. This is since the Dividend Distribution Tax (DDT) is no longer there. Oh, and did I forget to mention that all the lump sums or the SIP investment is locked or rather locked out, for a period of 3 years after which it will be possible to get it back through a redemption without incurring an exit load.

ELSS in New Tax Regime: Is it Still Relevant?

Given that the new tax regime will no longer allow ELSS investors the deductions against Section 80C, one of the biggest questions is whether, in the new tax regime, ELSS can any longer be relevant. This may weaken the tax-saving potential of ELSS as a factor to some people, but that does not imply that the category has become valueless.

The reality is that ELSS funds' performance has kept up well without the tax break incentive. Multiple ELSS funds provide returns as good, if not superior, to those of flexi-cap mutual funds. In addition, the requirement to lock funds in for a specified length of time can be seen as a behavioural advantage as it helps to avoid buy-in panics during market turbulences and promotes a more long-term investment process.

To investors of the new regime, ELSS can be considered a stable equity mutual fund with a provision of lock-in. The three-year lockup lets you keep your money in the stock so that you can beat the market volatility and hopefully come through the market reversals, which is a critical element of wealth-building.

Conclusion

Absolutely. Applicable either in the old tax regime or in the new regime, ELSS mutual funds are a very effective long-term investing tool. To the individuals of the pre-existing order, ELSS tax deduction allows early savings of tax on Section 80C. Yet, the real allure of ELSS funds in the absence of the tax advantage has been good historical track records, equity-like risk, and forced investment discipline during the ELSS lock-in.

So, you have already decided to invest 5000 per month through SIP, or you want to invest a lump sum before 31st March, ELSS funds in 2025 are not a very bad idea. They integrate the efficiency of taxation, growth ability and stability in a manner that is hardly matched by other investment products. Hold them in your portfolio, be it tax-advantaged or not, and have time and market discipline on your side.