Best ELSS Mutual Funds in 2025^~

This article will help you make informed decisions by exploring the top 10 ELSS funds to invest in 2025.

What are ELSS Mutual Funds?

The full form of ELSS is Equity Linked Savings Scheme. ELSS mutual funds primarily invest in equity or equity-related instruments that helps you save income tax under Section 80C of the Income Tax Act, 1961. These investment options come with a lock-in period of 3 years, during which you cannot withdraw your money. The ELSS funds combine the potential for long-term capital growth with tax-saving benefits.

ELSS funds primarily invest in the following equity and equity-related assets to generate capital appreciation over the long term:

• Stocks

• Convertible bonds

• Equity index futures

• Equity swaps

• Equity options

Top 10 ELSS Funds to Invest in 2025^~

The following table lists some of the best ELSS mutual funds in 2025 for investments with high returns:

*Policybazaar does not endorse, rate, or recommend any particular insurer or insurance product by an insurer or any other financial product.
#Expense Ratio as declared on 30 September 2023.
NOTE: The list is not a comprehensive one, and it is recommended to do thorough research whenever investing in these funds.

What are the Features of Equity Linked Savings Scheme (ELSS)?

ELSS mutual funds are the best tax-saving investments with the following key features:

*You can calculate your SIP returns from the ELSS mutual funds using an SIP Calculator.

What are the Tax Benefits of ELSS Funds?

The following table shows the ELSS tax benefits along with their tax implications:

How Does ELSS Mutual Funds Work?

Let us learn the workings of the Equity Linked Savings Scheme (ELSS Scheme) from the steps mentioned below:

Step 1: You invest money in an ELSS fund.

Step 2: The fund manager invests your money in a portfolio of stocks, convertible bonds, and other equity-linked investment securities.

Step 3: The value of your investment will go up and down depending on the performance of the underlying instruments.

Step 4: You can withdraw your money from the fund after three years.

What are the Benefits of Investing in Best ELSS Mutual Funds in 2025?^~

ELSS funds come with huge benefits. The most common reasons for investing in an ELSS fund are as follows:

1. Tax Saving Investments: 

   • ELSS tax benefits are the prime reason to invest in these mutual fund schemes

   • ELSS funds offer tax deductions of up to Rs. 1.5 lakhs under Section 80C of the IT Act, 1961.

   • This helps in reducing your taxable income

2. Long-Term Investment Options:

   • ELSS scheme helps in building a habit of investing for a more extended period

   • These funds come with a lock-in period, under which you need to invest for a minimum of 3 years

   • Moreover, you can get more tax benefits on returns after indexation by investing for a longer period in top ELSS funds.

3. High Returns in the Long Run:

   • With a long-term investment option, you can allow your funds to grow and redeem the benefits after 3 years

   • Since ELSS funds invest the money in equities, the possibility of earning good returns is higher

4. The discipline of Investing:

   • With ELSS mutual funds, you can inculcate the habit of saving consistently with Systematic Investment Plans (SIPs)

   • These funds allow you to start an investment as low as Rs.500 per month

   • This nurtures the practice of investing and benefits you from rupee cost averaging and compounding

5. Shorter Lock-In Period: 

   • ELSS has a lock-in period of just three years

   • This is the shortest among tax-saving investments, which allows for more liquidity

6. Professional Management:

   • ELSS funds are managed by experienced fund managers

   • These professionals have the expertise to select the right stocks

   • They invest your money in a way that minimizes risk and maximizes returns

Factors to Consider While Investing in ELSS Mutual Funds

Here are some of the essential aspects one should keep in mind before making any kind of investment in Equity Linked Savings Scheme (ELSS funds):

• Investment Goals: Determine your financial goals and the purpose of your investment in ELSS mutual funds.

• Risk Tolerance: Assess your risk tolerance to choose between growth and dividend options.

• Fund Performance: Research the historical performance of ELSS funds and their consistency.

• Expertise of Fund Manager: Evaluate the track record and experience of the ELSS scheme fund manager.

• Lock-In Period: Be aware of the mandatory three-year lock-in period for ELSS investments.

• Diversification: Check the diversification of the fund across different stocks to manage risk.

• Expenses: Understand the Expense Ratio (ER) and other costs associated with the fund.

• Tax Benefits: Ensure you understand the ELSS tax benefits and other tax implications from these investment plans.

• SIP or Lump Sum: Decide whether to invest through Systematic Investment Plans (SIP) or lump-sum investments.

• Exit Strategy: Plan for what you will do with your investments once the lock-in period ends.

Who Should Invest in ELSS Mutual Funds?

The following category of investors should consider investing in Equity Linked Savings Scheme (ELSS) Mutual Funds:

• Tax Savers: Individuals looking to save on income tax through Section 80C deductions.

• Long-Term Investors: Those willing to invest for at least three years to potentially benefit from equity returns.

• Risk Takers: People with a higher risk tolerance who can withstand market fluctuations.

• Goal-Oriented Investors: Those with financial goals like wealth creation or retirement planning.

• Equity Investors: Individuals interested in equity markets and seeking diversification.

• Investors Seeking Liquidity: As ELSS mutual funds have a shorter lock-in period compared to other tax-saving options, it suits those who want relatively quicker access to their investments after the lock-in period.

In Conclusion

The best Equity Linked Savings Scheme (ELSS mutual funds) in 2025 offer an attractive combination of tax benefits, the potential for higher returns, and a shorter lock-in period. These funds are well-suited for tax-savvy investors who are looking to grow their wealth over the long term. The ELSS funds provide you with the benefits of professional fund management and the flexibility to align with individual financial goals and risk tolerance. Careful consideration and research are crucial in selecting the right ELSS fund that aligns with your specific needs and objectives.