ELSS Mutual Funds - Risks and Returns of ELSS - Growth Coupled With Tax Saving
top of page
Search

ELSS Mutual Funds - Risks and Returns of ELSS - Growth Coupled With Tax Saving


ELSS is an open-ended mutual fund that invests majority of funds in equity and equity-related instruments. ELSS invests in equity of listed companies of different market capitalization based on the investment objective. Equity Linked Savings Scheme (ELSS) is most popular as Tax saving fund in India.


Features of Equity Linked Savings Scheme

  1. Tax Saving: Investor can claim tax deduction on the investment amount up to Rs 1.5 lacs under section 80 C. Along with this Long-Term Capital Gain on ELSS is exempt up to Rs 1 lac.

  2. Lock-in Period: ELSS has minimum lock-in period of 3 years which is lower than other tax saving investments such as PPF (15 Years), National Savings Certificate (5 Years) and National Pension Scheme (up to the age of 60 years) and Tax Saver Fixed Deposit (5 Years)

  3. Returns: As ELSS invests majority of funds in equity, it offers market-linked returns to the investors.

  4. Diversification: ELSS offers diversification by investing in stocks across different market capitalization (i.e., large cap, mid cap and small cap) and debt.

  5. Investment Method: Investment in ELSS can be made via lump sum or Systematic Investment Plan (SIP).

  6. Type of Funds: In ELSS Funds, there are mainly three options i.e., Growth Option, Dividend Option and Dividend Reinvestment Option.


Past Indicative Trend of Annual Returns generated by ELSS

Time Horizon

Minimum Return

Maximum Return

Average Return

7 Years

4.81%

28.61%

15.18%

10 Years

6.13%

25.49%

15.11%

15 Years

8.24%

21.05%

14.93%

It should be kept in mind that these returns are based on average and if the investor opts for a top performing fund, the returns may be higher for that fund and vice versa.


Top Performing ELSS with their Annualized returns for past 3 years and 5 years.

Scheme Name

3 Year

5 Year

Quant ELSS Tax Saver Fund – Direct Plan-Growth

​35.68%

30.34%

SBI Tax Advantage Fund-Direct Plan-Growth

26.90%

27.19%

SBI Long Term Advantage Fund-Regular Plan- Growth

29.19%

25.53%

Bank of India Tax Advantage Fund-Direct Plan-Growth

25.71%

24.32%

Sundaram Long Term Tax Advantage Fund-Direct Plan-Growth

41.53%

​23.63%

Who should Invest in Equity Linked Savings Scheme?

  1. Investor with the objective of Tax Saving while earning good returns on the investment.

  2. Investor is a newcomer or beginner and wishes to gain exposure of equity and mutual funds.

  3. Investor has moderate to high-risk appetite and can invest for the time horizon of at least 3 years.

Fundamental Considerations before Investing in ELSS:


  1. Past Performance: Check past performance of the fund and compare it with the competitors. Fund with better performance should be chosen.

  2. Expense Ratio: It represents how much expense the fund house is incurring so as to manage the fund and generating the returns. Lower the expense ratio, better it is.

  3. Financial Parameters: Investor can evaluate the fund scheme on the basis of various financial parameters like Standard Deviation & Beta (to analyse the level of risk involved) and Sharpe Ratio (to analyse how much excess risk adjusted return the scheme can generate for the investor).

  4. Fund Manager: Fund Manager plays vital role in managing the fund; therefore, it is important to check the professional experience of the fund manager.

  5. Investment Method: Investor should consider which investment method is suitable. For instance, if investor does not wish to invest in one go or has low risk appetite then SIP is more suitable and if investor has high risk appetite and wishes to generate high returns then lumpsum is more suitable.


Investor needs to be aware of the fund scheme, market conditions and consider all these factors before investing in any scheme so as to make informed decisions and achieve the investment objective.


To Compare Returns of Mutual Fund as per your Investment Goal here




To Know Other Types of Mutual Fund Read our below articles:


Grow & Save Tax with Equity Linked Mutual Fund (ELSS) -

Regular Income with Low Risk with Liquid Fund -

Index Funds – Equity Gain couple with balanced income approach -

Plan your retirement savings with Retirement Mutual Fund Schemes -

bottom of page