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Best Tax Saving Mutual Funds to Invest in 2025
Tax-saving mutual funds, also known as ELSS mutual funds (Equity-Linked Saving Schemes), are one of the most popular options for tax saving under Section 80C of the Income Tax Act, 1961. These funds invest at least 80% of their assets in equities and equity-related instruments, offering the dual benefit of wealth creation and tax deduction up to ₹1.5 lakh per financial year.
With a mandatory lock-in period of three years, ELSS funds encourage a long-term investment mindset among investors. Over time, this approach can lead to enhanced portfolio returns, especially when compared to traditional tax-saving instruments. However, it's important to remember that ELSS mutual funds come with market risks, unlike fixed-income options such as the Public Provident Fund (PPF) or Fixed Deposits (FDs).
In this blog, we will take a closer look at the best tax saving mutual funds available today, highlight the top ELSS funds for 2025, and provide a simple guide on how to invest in tax saving mutual funds. We'll also compare ELSS vs PPF vs FD to help you make an informed choice based on your financial goals and risk appetite.
List of Top Tax Saving Mutual Funds
Here's a list of top tax saving mutual funds in India.
| Fund Name | Minimum Investment | 1 Year Returns | Fund Size (in Cr) |
| Bandhan Tax Advantage (ELSS) Fund | Rs. 500 | 16.30% | Rs. 5160 |
| Kotak Tax Saver Fund | Rs. 100 | 14.80% | Rs. 4199 |
| Franklin India Taxshield Fund | Rs. 500 | 43.69% | Rs. 6,179.88 |
| Mirae Asset Tax Saver Fund | Rs. 500 | 13.40% | Rs. 17,985 |
| Mahindra Manulife ELSS Fund | Rs. 500 | 22.90% | Rs. 3,602.19 |
| PGIM India ELSS Tax Saver Fund | Rs. 500 | 34.61% | Rs.657.15 |
| Canara Robeco Equity Tax Saver Fund | Rs. 500 | 17.5% | Rs.7509.52 |
| Motilal Oswal ELSS Tax Saver Fund | Rs. 500 | 24.52% | Rs. 3,205.13 |
Disclaimer: This list of mutual funds contains data updated as of 26th April 2024. However, it's important to conduct detailed research before making any investment decisions in these stocks.
Table of Contents
Overview of the Best Tax Saving Mutual Funds
Let’s now take a brief look at some of the best tax saving mutual funds.
What are Tax Saving Mutual Funds?
Tax saving mutual funds are similar to other mutual funds, but they have the extra benefit of saving taxes. Investments in tax saving mutual funds are eligible for tax benefits under Section 80C of the Indian Income Tax Act. This unique feature makes tax saving mutual funds different from other types of mutual fund schemes.
Tax-saving mutual funds are also called equity-linked savings schemes (ELSS). They invest primarily in stocks and equity-related assets, but some funds are allocated to debt instruments.
What Are Tax Saving Mutual Funds (ELSS)?
Tax saving mutual funds, also known as ELSS mutual funds, are equity-oriented schemes that help investors claim tax saving under 80C of the Income Tax Act. These funds primarily invest in stocks and offer the potential for higher long-term returns. Among the best mutual funds to save tax, ELSS combines tax benefits with wealth creation. Many investors look for the top ELSS funds for 2025 to optimize returns and tax savings. ELSS is a great option when comparing ELSS vs PPF vs FD for tax planning.
What Is the Lock-in Period for ELSS?
ELSS mutual funds come with a mandatory lock-in period of 3 years, the shortest among all 80C options. This period ensures discipline and encourages long-term investing. Unlike PPF or FDs, you cannot redeem ELSS units before this period. Despite the lock-in, many still consider them the best tax saving mutual funds due to higher return potential. If you're wondering how to invest in tax saving mutual funds, most platforms offer SIP and lump sum investment options easily.
How do Tax Saving Mutual Funds Work?
Tax-saving index funds invest in a portfolio of equities that reflect a certain market index. This signifies that the fund's success is closely related to the performance of the index. When the index goes up, so does the fund, and vice versa.
Tax-saver index funds are qualified for a tax reduction under Section 80C of the Income Tax Act of 1961. Investing in these funds allows you a tax deduction of up to ₹1.5 lakh.
Who Should Invest in These Tax Saving Mutual Funds?
The following types of investors may consider investing in a tax saver best mutual fund.
Factors to Consider Before Investing in the Best Tax Saving Mutual Funds
Consider the following factors before you invest in the tax saving best mutual fund.
Features of Tax Saving Mutual Funds
Here are the key features of ELSS funds.
- Minimum Lock-In Period: This is the only Section 80C investment with a shorter lock-in term of three years.
- Different Modes of Investment: Investors can use the SIP approach or invest in lump sums. It is preferable to select the systematic investment plan (SIP) strategy since investors may invest low amounts and also take advantage of rupee cost averaging.
- Low Investment Requirement: Investors can start investing in ELSS with a minimum of Rs. 500. So, you can get tax saving on SIP.
- Investment Horizon: ELSS mutual funds require an investment horizon of at least three years. Investors can stay invested for a long time, which may offer considerable returns.
- Diversification: ELSS mutual funds invest the bulk of their money in equities, equity-linked instruments, and other securities, diversifying their portfolio. Diversification helps prevent significant losses under extremely volatile market situations.
- Taxation: After the three-year lock-in period, long-term capital gains (LTCG) of up to Rs. 1 lakh per year from ELSS mutual funds are free from income tax. In addition, LTCG above Rs. 1 lakh are taxed at 10%.
Comparing Tax-Saving Investment Schemes and ELSS Funds
Here’s a quick comparison between ELSS and other tax-saving investment schemes.
| Investment Plans | Returns Range | Lock-in Period | Tax Implications |
| Tax Saving or ELSS Funds | 15% to 18% | 3 years | Investments are tax-free, and tax deductions are available on capital gains. |
| Public Provident Fund (PPF) | 7% to 8% | 15 years | Taxes are not levied on returns, and tax deduction are available on investments. |
| National Pension System (NPS) | 8% to 10% | Till Retirement | You get a tax deduction on investments, but the returns are partially taxable. |
| Tax Saving Fixed Deposits | Usually varies with different banks | 5 years | Tax deductions are applicable on investments. Returns are taxable if interests are more than Rs 10,000. |
| National Savings Certificate (NSC) | 7% to 8% | 5 years | Taxes are applicable on both investments and your capital gains |
Benefits of the Best Tax Saving Mutual Funds
The following are the key benefits of best tax savings mutual funds.
- Tax Savings: Tax-saving mutual funds offer a tax deduction of up to Rs. 1.5 lakh under section 80C of the Income Tax Act, reducing the overall tax burden on investors.
- Transparency: These funds regularly update the investors with scheme information disclosing its performance and market value. Allowing investors to easily track their portfolio.
- Higher Returns: ELSS funds invest in equity schemes, so their returns may be higher than those of other tax saving investments. The compounding effect and returns from equity generally offer higher returns.
- Professionally Managed: The best tax saving MF is generally managed by experienced fund managers. Their expertise helps them curate the portfolio in the best possible way.
Risks of Investing in Tax Saving Mutual Funds
The risks associated with tax-saving mutual funds are as follows.
- Liquidity Risk: It refers to the risk of not being able to redeem their assets without incurring losses. Investments in ELSS funds will be locked in for three years. The investor cannot redeem or transfer the investments during this period.
- Market Risk: It is the risk of losses due to the market's poor performance. Several factors might hurt stock market values, including a recession and global events.
Conclusion
Tax saving mutual funds, commonly known as Equity-Linked Savings Schemes (ELSS), provide tax benefits and capital appreciation. They allow tax deductions of up to Rs 1.5 lakh under Section 80C of the Income Tax Act. The tax benefits and shorter lock-in time make it a good investment option for investors. Hence, ELSS mutual funds allow investors to grow their wealth while saving taxes simultaneously. It provides several advantages, such as low investment requirements and compounding growth. Nowadays, you can invest in ELSS funds with an online trading app. However, remember that ELSS funds are mostly volatile equity-related products. Therefore, consider your risk appetite while making any investments.
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FAQs on Tax Saving Mutual Funds
Why should you consider investing in ELSS mutual funds?
ELSS mutual funds are tax-saving funds that allow you to build wealth over time and also save taxes. So, this may be suitable for investors looking to reduce the tax burden.
What are the risks of investing in ELSS mutual funds?
ELSS mutual funds significantly invest in the equity market. Equities are generally very sensitive to market volatility. This makes ELSS mutual funds quite risky.
Can I withdraw my funds from an ELSS fund after three years?
Yes, you may withdraw your funds from an ELSS fund after the three-year lock-in period. After three years, you can withdraw all your investments. However, SIP investments must be completed within three years.
PPF or tax-saving funds: which is better?
PPF and ELSS are both tax-friendly investments. However, despite market risks, ELSS has a higher potential for wealth generation and liquidity than PPF. Investors should consult with a financial professional to find out whether an ELSS scheme will be appropriate for their tax planning goals.
Is long term-capital gains tax applicable on ELSS funds?
Long-term capital gains from ELSS are tax-exempt up to Rs. 1 lakh, and dividends are tax-free. Even after the three-year lock-in period, you can continue to invest in these funds.
Which mutual fund is best for tax saving?
Some of the best tax saving mutual funds (ELSS) include Quant ELSS Tax Saver, Axis Long Term Equity, and Mirae Asset Tax Saver Fund. These top ELSS funds for 2025 offer strong historical performance and consistent returns. Always match the fund with your risk profile and investment horizon.
What is the best mutual fund to save tax under Section 80C?
ELSS mutual funds are widely considered the best mutual funds to save tax under Section 80C. They offer tax deductions up to ₹1.5 lakh and potential for long-term capital growth. Choose funds with a good track record and stable fund management.
How much can I invest in ELSS for tax saving?
You can invest any amount in ELSS, but only up to ₹1.5 lakh per financial year is eligible for tax saving under 80C. Investments beyond ₹1.5 lakh won’t offer additional tax benefits. There’s no upper limit on how much you can invest, only on the tax benefit.
Is ELSS better than PPF or FD for tax saving?
ELSS vs PPF vs FD depends on your goals—ELSS offers higher return potential with market risk. PPF is safer with fixed returns and a 15-year lock-in; FDs offer safety but lower post-tax returns. For long-term growth and tax saving, ELSS often outperforms over time.
Can I withdraw ELSS before 3 years?
No, ELSS mutual funds have a fixed lock-in period of 3 years and cannot be withdrawn earlier. Each investment is locked individually for 3 years, even in SIPs. After 3 years, you can redeem or switch as needed.
What is the ideal way to invest in ELSS — SIP or lump sum?
Both SIP and lump sum are valid ways on how to invest in tax saving mutual funds. SIP in ELSS helps with rupee cost averaging and disciplined investing. Lump sum is suitable when you have idle funds, especially early in the financial year.
Are returns from ELSS tax-free?
Returns from ELSS mutual funds are subject to Long-Term Capital Gains (LTCG) tax. Gains up to ₹1 lakh per financial year are tax-free; excess is taxed at 10%. So, returns are not fully tax-free but still tax-efficient.
Can NRIs invest in ELSS for tax saving in India?
Yes, NRIs can invest in ELSS mutual funds and claim tax saving under 80C, if they have taxable income in India. However, some AMC restrictions apply based on the country of residence.
Always check fund house eligibility and tax rules before investing.
