Tax Saving Mutual Funds

December 27, 2022


Mutual funds are a great investment tool that pools your investment amount and invests it in various return-yielding schemes. Tax-saving mutual funds let you enjoy tax benefits under Section 80C of the Income Tax Act. These funds are also known as Equity Linked Savings Scheme (ELSS).

What are Tax Saving Mutual Funds?

Tax-Saving Mutual Funds or Equity-Linked Savings Scheme are comparable to other mutual fund schemes but have the extra tax benefit. Under Section 80C of the Income Tax Act of 1961, these funds assist investors, individuals and HUFs, in reducing their tax obligations. The maximum tax deduction for ELSS investments is INR 1.5 lakh.

Mutual funds that save on taxes frequently invest in the market for growth-oriented stocks. As a result, investors can potentially earn good returns and contribute to the long-term creation of wealth.

Top Tax Saving Mutual Funds in India

Many platforms offer various mutual funds tax-saver schemes. One should do complete research before investing in a scheme. We have compiled a list of the top tax-saving mutual funds to make things easy. They are:

Scheme Name Crisil Rank AuM (Cr) NAV 52W High 52W Low
Franklin India Taxshield Fund – Direct – Growth 3 5096.03 1020.6525 1031.3725 813.3254
HDFC Tax Saver Fund – Direct Plan – Growth 4 10353.90 888.217 901.16 710.023
HDFC Tax Saver Fund – Growth 5 10353.90 835.679 848.052 671.204
ICICI Prudential Long Term Equity Fund (Tax Saving) – Direct Plan – Growth 3 10563.71 676.94 688.69 560.98
ICICI Prudential Long Term Equity Fund (Tax Saving) – Growth 3 10563.71 619.75 630.69 515.45
Sundaram Tax Saving Fund – Direct Plan – Growth 3 997.49 368.3277 372.6509 302.0102
Sundaram Tax Saving Fund – Growth 4 997.49 349.4676 353.5753 287.3965
Quant Tax Plan – Direct Plan – Growth 5 2327.41 278.3509 282.4754 209.7141
SBI Long Term Equity Fund – Direct Plan – Growth 4 12091.59 259.819 262.6042 206.8211
Quant Tax Plan – Growth 5 2327.41 256.1832 259.9912 194.5044
SBI Long Term Equity Fund – Regular Plan – Growth 4 12091.59 244.6844 247.3122 195.3431
UTI Master Equity Plan Unit Scheme 2322.13 164.9247 168.0693 136.9272
UTI Master Equity Plan Unit Scheme 2482.08 164.9247 168.0693 136.9272
UTI Long Term Equity Fund (Tax Saving) – Direct Plan – Growth 3 3014.94 158.5505 166.9859 131.4503
UTI Long Term Equity Fund (Tax Saving) – Growth 3 3014.94 145.4193 154.5549 121.1805
Canara Robeco Equity Tax Saver Fund – Direct Plan – Growth 4 4582.95 129.81 132.06 106.83
Taurus Taxshield – Direct Plan – Growth 2 64.12 129 130.3 107.21
Taurus Taxshield – Growth 2 64.12 120.33 121.54 100.32
SBI Tax Advantage Fund – Series III – Regular Plan – Growth 31.44 63.6732 64.936 52.737
Baroda BNP Paribas  Fund – Regular Plan – Growth 2 703.79 59.7513 62.741 50.4991
HSBC Tax Saver Equity Fund – Growth 2 199.29 58.1281 60.3622 47.9136

How do Tax Saving Mutual Funds work?

Tax-saver mutual funds pool money from several investors and invest it mainly in the stock market. When the fund’s portfolio corpus is invested in the equity market, it is done so in a balanced manner that, even if one investment loses money, the other can offset the loss. There is a three-year lock-in period during which you cannot withdraw your money from tax-saving mutual funds like ELSS. The lock-in period for each instalment when investing in mutual funds through a SIP is three years.

For instance, the breakdown of an investment in a specific fund can resemble:

Industry Percentage Invested
Automotive industry 6.56%
Banks 17.56%
Durables for consumers 5.34%
Non-durable consumer goods 5.66%
Power 5.92%
Technology  8.93%
Medicinal products  9.99%

The above table illustrates the average allocation of a mutual fund’s assets among market securities. This indicates that the automobile industry will receive 6.56% of the investment, banks will receive 17.56%, and so on. If you pay your first SIP instalment on June 1, 2022, and your second instalment on July 1, 2022, respectively, the first instalment will be locked until June 2025, and the second instalment will be closed until July 1, 2025.

You can only redeem mutual fund units that have passed their lock-in term when redeeming them. The current NAV can be used to redeem them.

How to Evaluate the Best ELSS Mutual Funds

You must remember the following when evaluating the best ELSS mutual funds.

History of the Fund House

For the aim of investing, fund houses that have consistently outperformed over a long time horizon, let’s say over five years, should be considered. The fund is said to have produced higher returns if it exceeds its benchmark. Before deciding on the best mutual funds, remember that a fund’s performance is based on the calibre and performance of the stocks it holds.


Simply comparing the return of the relevant fund to its benchmark is insufficient.

Additionally, one should assess how the fund has performed compared to its rivals. After carefully analysing the returns over an extended period, the investments should be made.

Expense Ratio

Professionals who manage ELSS commit their own time and money to maximise your return on investment. Their in-depth awareness of the industry and market expertise aids them in determining which equities should be included in the fund.

The expense ratio reveals how much money is spent on fund management. If the fund informs a lower expense ratio, you walk home with a pocket full of cash and vice versa.

Portfolio Turnover

Portfolio turnover is the rate at which the fund manager buys and sells stocks within the portfolio. The fund manager will ultimately be in charge of the funds, so it is up to him to decide when to enter or exit the market. A small turnover of his holdings suggests that he is neither joining nor exiting the markets. Conversely, a high turnover shows that the portfolio has seen too many changes.

Types of Equity-linked Savings Scheme (ELSS)

The tax-saving mutual funds category includes two different types of plans. The first is a dividend plan, while the second is a growth plan. The growth schemes produce a long-term capital appreciation for the investors that can be redeemed at the end of the maturity period, in contrast to the dividend schemes, which allow investors to receive additional income in the form of dividends declared by the relevant fund house from time to time depending on the availability of the distributable surplus. The dividends can be withdrawn or reinvested in the fund and will qualify for tax benefits. They are also not subject to taxes or lock-in periods. For the ELSS growth plans, there are no such provisions.

Features of Tax Saving Mutual Funds

The features of tax-saving mutual funds are:

  • The minimum investment one can make in a mutual funds tax saver scheme is INR 500. There is no upper limit on investing in tax-saving funds, unlike PPF and NSC.
  • Investments accounting for INR 1 lakh will only be able to avail of tax benefits
  • The lock-in period is three years for investments made under this scheme
  • The facility of nominating a beneficiary is offered
  • The tax-saving mutual funds or ELSS are open-ended.
  • Any fluctuations in the market affect this type of mutual fund. The risk can be mild, medium or substantially large, depending on your invested funds.
  • Entry and exit loads are other features of these funds. These are the charges made by the providers when investors buy, sell, redeem, or transfer fund units.

Benefits of Tax Saving Mutual Funds

Apart from the tax benefits, the investors enjoy the following benefits by investing in tax saver mutual funds:

  • Under this scheme, LTCG or Long-Term Capital Gains are not taxed
  • Investors enjoy a tax benefit of up to INR 1.5 lakhs
  • All year-round investments can be made owing to the fund’s open-ended nature
  • Funds are managed by experienced and knowledgeable fund managers. Investors less educated in the matter of funds can rely on these managers
  • This mutual funds tax saver scheme has a lock-in period of 3 years, unlike other schemes with a lock-in period ranging from 6-20 years
  • Investments in these plans can be made as a way to budget for future costs like purchasing a car or making a down payment on a home.
  • These programmes eliminate the requirement for lump-sum investments by allowing investors to make monthly investments through SIPs (Systematic Investment Plans).
  • To reduce the danger of significant losses, the assets in the portfolios are not all invested in one location.
  • If you decide against withdrawing your investment, it will keep growing and turn into a respectable sum of funds for an emergency.

Tax Saving Mutual Funds ELSS vs PPF vs FD

A comparison table has been drawn to understand the fundamental differences between the tax-saving mutual funds or ELSS, Public Provident Fund (PPF) and Fixed Deposit (FD).

Investment Eligibility Any individual taxpayer including NRIs Resident Indian individuals Any individual taxpayer including NRIs and HUF
Investment Amount INR 500 up to no limit INR 500 up to INR 1.5 lakh INR 100 to up to INR 1.5 lakh
Lock-in-Period 3 years 15 years five years
Tax on Returns Tax-free Tax-free Taxable
Expected Returns 10% to 15% (market-related) No return No return
Investment Option Medium to long term Long term Medium to long term
Loan Facility Partial loan after completion of 3 years Loan available after completion of 3 years No loan available
Risk Factor Risk associated No risk No risk
Tax Saving Benefit INR 1.5 lakh as specified under Section 80C of Income Tax Act, 1961 INR 1.5 lakh as specified under Section 80C of Income Tax Act, 1961 INR 1.5 lakh as specified under Section 80C of Income Tax Act, 1961
Related Resource
Best Mutual Funds in India

Tax Saving Mutual Funds (FAQs)

Which mutual fund is best for tax savings?

Quant tax plan direct growth is the best mutual fund for tax saving.

Can tax be saved in a mutual fund?

Yes, tax can be saved in a mutual fund. One can apply for tax-saver mutual funds to save tax up to INR 1.5 lakhs.

When should I pay for my SIP?

You can pay for your SIP every month.

How to invest in ELSS mutual funds online?

Various platforms allow you to invest in ELSS mutual funds online. Urban Money is one website through which you can watch your money grow while sitting comfortably at home.

How is NAV calculated?

The formula to calculate Net Asset Value (NAV) is - Total Asset Value / Total units issued

What is the maximum amount that can be invested in these funds?

There is no limit on the maximum amount invested in tax-saving mutual funds.


Shweta Agarwal lets her pen dance to its own tunes. Torn between work and play, she finds solace in sleep. Having done her studies in Finance, she loves to research and write about her niche. She is also the proud author of her poetry book ‘ Hues of Pink ’and loves musical instruments.

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