If you’re looking to save tax and generate high returns, investing in Equity Linked Savings Schemes (ELSS) can be a great option. Several 5-star rated ELSS funds have delivered impressive returns over the past five years, multiplying investors’ capital by three to five times. Additionally, these funds have provided up to 250% absolute returns on investments made through Systematic Investment Plans (SIP).
Why Invest in 5-Star Rated ELSS Funds?
ELSS funds offer a dual advantage—tax savings and long-term wealth creation. Under Section 80C of the Income Tax Act, you can claim a tax deduction of up to ₹1.5 lakh annually on investments made in ELSS funds. Plus, these funds have a lock-in period of just three years, making them more flexible than other tax-saving options like Public Provident Fund (PPF) or tax-saving Fixed Deposits (FDs), which have longer lock-in periods.
Not only do ELSS funds offer tax benefits, but they also invest primarily in equities, leading to higher returns compared to other tax-saving instruments. However, like all equity investments, they come with market risks, so it’s essential to have a long-term perspective when investing.
Let’s take a closer look at four top-rated ELSS funds that have performed exceptionally well over the last five years.
1. Quant ELSS Tax Saver (Direct Plan)
Quant ELSS Tax Saver is one of the top-performing funds in this category, offering excellent returns both on lump-sum investments and SIPs.
- 5-Year Lump Sum Annualized Return: 37.73%
- Value of ₹1 Lakh Investment after 5 Years: ₹4,95,613
- 5-Year SIP Return (Annualized): 38.27%
- Value of ₹5,000 Monthly SIP after 5 Years: ₹7,60,611
In addition to the 5-year performance, the fund has also delivered strong returns over shorter and longer durations. For instance, its 3-year return is 27.28%, and its 10-year return is 24.44%, making it a great option for those looking for both short-term gains and long-term wealth creation.
2. Bank of India ELSS Tax Saver Fund (Direct Plan)
The Bank of India ELSS Tax Saver Fund has also performed impressively over the last five years, offering robust returns for both lump-sum and SIP investors.
- 5-Year Lump Sum Annualized Return: 29.02%
- Value of ₹1 Lakh Investment after 5 Years: ₹3,57,508
- 5-Year SIP Return (Annualized): 30.39%
- Value of ₹5,000 Monthly SIP after 5 Years: ₹6,32,970
This fund’s 3-year return is 20.82%, and its 10-year return is 18.95%, showcasing consistent performance across different periods.
3. SBI Long Term Equity (Direct Plan)
SBI Long Term Equity Fund has proven to be a reliable performer in the ELSS category, offering strong returns over the last five years.
- 5-Year Lump Sum Annualized Return: 27.89%
- Value of ₹1 Lakh Investment after 5 Years: ₹3,42,124
- 5-Year SIP Return (Annualized): 33.84%
- Value of ₹5,000 Monthly SIP after 5 Years: ₹6,86,329
This fund’s 3-year lump-sum return is an impressive 28.63%, and its 10-year return is 16.68%, making it a solid choice for long-term investors.
4. Parag Parikh ELSS Tax Saver (Direct Plan)
The Parag Parikh ELSS Tax Saver Fund has consistently delivered good returns, making it a favorite among tax-saving investors.
- 5-Year Lump Sum Annualized Return: 26.54%
- Value of ₹1 Lakh Investment after 5 Years: ₹3,24,444
- 5-Year SIP Return (Annualized): 28.8%
- Value of ₹5,000 Monthly SIP after 5 Years: ₹6,09,569
Although the fund has been around for less than 10 years, it has garnered attention for its solid performance. Its 3-year return is 21.85%, further emphasizing its strength in providing both tax benefits and wealth creation.
Tax Benefits of ELSS Funds
One of the key reasons why investors are attracted to ELSS funds is the tax-saving benefit under Section 80C. You can claim a deduction of up to ₹1.5 lakh in a financial year. The 3-year lock-in period is the shortest among other tax-saving instruments, such as PPF (15 years) and tax-saving FDs (5 years).
Additionally, the gains from ELSS investments are subject to Long-Term Capital Gains (LTCG) tax. If your profits exceed ₹1.25 lakh in a financial year, LTCG tax is levied at a rate of 12.5%, which is favorable for individuals in higher tax brackets.
Market Risks and Considerations
While ELSS funds provide substantial returns, it’s essential to remember that they are subject to market risks since they invest primarily in equities. Unlike fixed-income options like FDs or PPF, returns from ELSS are not guaranteed. Therefore, it’s crucial to assess your risk tolerance before investing and to have a long-term perspective to weather market fluctuations.
