How Finology Selects Best ELSS Funds?

What are ELSS Funds?

Equity-Linked Savings Scheme (ELSS) is a type of mutual fund that primarily invests in equities. It offers the dual benefits of potential market returns and tax savings under section 80C of the Income Tax Act. 

ELSS funds are required to make at least 80% of their investments in accordance with  Equity Linked Saving Scheme, 2005, notified by the Ministry of Finance. Investors in this category are eligible for tax deductions of up to ₹1.5 lakh p.a. There is also a lock-in period of 3 years where you can't liquidate your invested funds for the duration of 3 years. So, park the savings that you think you might not use for at least this duration.

ELSS funds are relevant for investors who fall under the old tax regime in India. We also believe that ELSS funds are suitable for new investors or investors who struggle with discipline in investing. The 3-year lock-in feature helps investors avoid impulsive decision-making and allows them an opportunity for better long-term growth potential.

Stability becomes more important than anything when you are investing for your goals. Even while picking stocks for Finology 30, we choose stocks that you can rely on for the long-term.

How Did We Select The Best ELSS Fund?

This scheme was introduced in 2005, we analysed 39 direct funds available in this category. We did a screening exercise to pick the best of the lot.

In the beginning, we focused on returns and considered only those ELSS funds that beat the benchmark rolling returns over long-term performance track records. We got 20 ELSS funds that beat their benchmark rolling returns over the last five years. 

Out of the remaining 20 funds, we shortlisted those with an expense ratio below the group average. This narrowed our selection to 3 funds, chosen for their low expense ratios and the solid reputation of their asset management companies (AMCs).

Among these three, one fund had a slightly higher expense ratio, while the other two showed similar results in terms of expense ratios and rolling returns. 

Our chosen fund for the year stands out for its low cost and consistent performance. It is a tax-saving ELSS fund aiming to achieve long-term financial goals while providing tax benefits. The fund invests diversified across categories, ensuring a balanced approach. It combines a competitive expense ratio with healthy returns over 3 and 5 years, making it a reliable option for investors looking to build wealth while saving on taxes.

We have revealed our choice of large & mid-cap funds for 2025 in Recipe’s Free Reports section. Stay tuned!