Best tax saving mutual funds or ELSS to invest in July 2025

Economic Times

11-07-2025

iStock Tax -saving mutual funds or Equity Linked Savings Schemes (ELSSs) helps you to save income tax under Section 80C of the IT Act.
Most taxpayers make their investments in the last three months of the financial year (January-March). Most of them look for the investment options available under Section 80C of the Income Tax Act (IT Act). The Section 80C of the Income Tax Act allows tax deduction of up to Rs 1.5 lakh in a financial year on investments in a few specified instruments. If you are trying to save taxes in this financial year, you can consider investing in tax-saving mutual funds or ELSSs.Tax -saving mutual funds or Equity Linked Savings Schemes (ELSSs) helps you to save income tax under Section 80C of the IT Act. You can invest a maximum of Rs 1.5 lakh in ELSSs and claim tax deductions on your investments every financial year. Are you interested?
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Before proceeding further, you should familiarise yourself with ELSSs. Tax saving mutual funds or ELSSs invest in stocks. Therefore, they have a very high risk. You should be aware of this aspect, especially if you are a first-time investor in equity mutual funds. Compared to your usual investments like Public Provident Fund or National Savings Certificate, etc, ELSSs do not offer guaranteed returns. You may even suffer losses in a bad market.So, why should you invest in ELSSs? One, these schemes have the potential to offer higher returns over a long period. As you know, tax saving schemes invest in stocks. And stocks typically offer higher returns over a long period of time. For example, the ELSS category offered an average return of around 13.61% over 10 years.
Two, ELSS funds have the shortest lock-in period of three years among tax saving investments. Most other investment options under the 80C basket are government-backed investments. They typically come with longer lock-in periods. For example, PPF is a 15-year product that allows partial withdrawals after six years. The NSC is a five-year product. So, if you want access to your money in three years, you should invest in ELSSs. But don't count on it to offer you great returns in three years. You should always keep in mind that equity investing is for the long term. You should invest in equity mutual funds only if you have an investment horizon of five to seven years.And the third and the most important point to remember is that ELSSs is an entry point for many investors into investing in stocks. Many investors often start with ELSSs and the mandatory lock-in period of three years in these schemes helps them to weather the volatility in the stock market. Once these investors see the rewards coming in, say, five or seven years, they start investing more money in equity schemes.Also Read | Parag Parikh Flexi Cap Fund increases stake in ITC, Coal India, and 10 other stocks in June
If you are interested in investing in these schemes, here are our recommended ELSSs you may consider investing in these schemes. Invesco India Tax Plan Fund has been in the third quartile for the last 12 months. The scheme had been in the fourth quartile earlier. Canara Robeco Equity Tax Saver Fund has been in the third quartile for the last 11 months. The scheme had been in the fourth quartile earlier. Mirae Asset Tax Saver Fund was in the third quartile for 17 months. Canara Robeco ELSS Tax Saver Fund
Mirae Asset ELSS Tax Saver Fund
Invesco India ELSS Tax Saver Fund
DSP ELSS Tax Saver Fund
Quant ELSS Tax Saver Fund (new addition)
Bank of India ELSS Tax Saver (new addition) Here is our methodology:
ETMutualFunds has employed the following parameters for shortlisting the equity mutual fund schemes.
1. Mean rolling returns: Rolled daily for the last three years.
2. Consistency in the last three years: Hurst Exponent, H is used for computing the consistency of a fund. The H exponent is a measure of randomness of NAV series of a fund. Funds with high H tend to exhibit low volatility compared to funds with low H. i) When H = 0.5, the series of returns is said to be a geometric Brownian time series. This type of time series is difficult to forecast.ii) When H is less than 0.5, the series is said to be mean reverting.iii) When H is greater than 0.5, the series is said to be persistent. The larger the value of H, the stronger is the trend of the series
3. Downside risk: We have considered only the negative returns given by the mutual fund scheme for this measure. X =Returns below zeroY = Sum of all squares of XZ = Y/number of days taken for computing the ratioDownside risk = Square root of Z
4. Outperformance: It is measured by Jensen's Alpha for the last three years. Jensen's Alpha shows the risk-adjusted return generated by a mutual fund scheme relative to the expected market return predicted by the Capital Asset Pricing Model (CAPM). Higher Alpha indicates that the portfolio performance has outstripped the returns predicted by the market. Average returns generated by the MF Scheme = [Risk Free Rate + Beta of the MF Scheme * {(Average return of the index - Risk Free Rate}
5. Asset size: For Equity funds, the threshold asset size is Rs 50 crore
(Disclaimer: past performance is no guarantee for future performance.)