ELSS Funds 2026: Best Tax Saving Mutual Funds with High Return Potential

With the changing trends in personal finance, the smart money would look for ways not only to save income tax but also to grow savings. ELSS funds (Equity Linked Saving Schemes) are among the most attractive options today for tax savings via mutual funds. 

ELSS funds 2026 are beginning to make more sense for those attempting to balance their portfolios for 80C and are looking to save taxes while investing in high-return potential mutual funds. These funds are a smart long-term wealth creation option, as they provide tax deductions and the benefits of equity investments.

Regardless of whether you are an experienced investor or are just getting started, understanding how ELSS funds work will most certainly help you in planning your finances. We will assess ELSS funds in this article, while explaining how these are arguably the best ELSS funds and how they help save taxes. 

We will also highlight the best ELSS funds in the coming years of 2026. By investing in ELSS funds, you are able to save/add taxes of rupees 1.5 lakhs, and with the savings, you are giving your funds to the stock market for investments. Save your funds and invest your money with the help of tax-saving funds in the stock market. We will explore the importance of tax-saving mutual funds in the modern economic climate.

 

What are ELSS Funds?

Mutual funds are funds that other people invest in that are also legally merged with other investors. These funds operate by professionally managing the money that the investors have contributed. ELSS (Equity Linked Savings Schemes) are types of mutual funds that invest primarily in equities and other equity-related instruments, while also ensuring that they have 80% of their portfolios invested in equities. 

Even with that, other equity funds do not have tax benefits as ELSS funds do under section 80C of the Income Tax Act of 1961. ELSS funds also make it easier for investors to make claims of rupees 1.5 lakhs worth of tax deductions in a single financial year.

ELSS funds were originally designed to promote equity investments and also aim to provide income tax savings. They also have a 3-year lock-in period which is shorter than other Section 80C options like fixed deposits or PPFs. 

This lock-in period is designed to make sure that investors remain invested in the funds long enough to reap the benefits of compounding. ELSS funds in 2026 and beyond will likely continue to evolve with fund houses offering diversified portfolios across large-cap, mid-cap, and small-cap equities to provide a better risk-reward balance.

In contrast to traditional tax-saving instruments, where the returns are guaranteed, ELSS funds are market-linked. Hence, their performance depends on what happens in the stock markets. This is where the high return potential comes from, as ELSS funds will outperform other tax-saving Section 80C investment options like PPF or fixed deposits. Many of the best-performing ELSS funds have delivered 15-20% annualized returns in the last 5 years, which makes them great options for investors with a high-risk appetite.

 

Why You Need To Invest in ELSS Funds

There are many reasons to start investing in ELSS funds. You gain benefits beyond tax savings, such as tax deductions that help you save more money. You can achieve this by filing a Section 80C, which reduces your taxable income and saves you money depending on which slab you fall into. For instance, a 30% taxpayer will save ₹46,800 (inclusive of taxes and cess) by investing ₹1.5 lakh in tax-saving mutual funds.

 In the end, you will receive the highest returns for your money, as the funds are invested in equities. Many of the leading ELSS funds in the past decade have compounded their wealth significantly more than fixed interest options, due to steady predictions for the growth of the Indian economy in 2026 and increasing expected revenue from technology, health, and renewable ELSS funds of 2026 in rapidly expanding markets.

 The three-year lock-in period for ELSS funds is actually a positive aspect, as it encourages motivation and consistent investing without withdrawals, even if it increases your risk of incurring short-term taxes on other investments. Post lock-in period, ELSS funds are taxed at 12.5% on long-term capital gains, but only if they exceed ₹1.25 lakh, which is more advantageous than paying short-term gains on other investments. Additionally, investing in tax-saving mutual funds through a Systematic Investment Plan (SIP) helps avoid paying a higher price per unit and reduces risk through averaging over multiple trades.

 As ELSS fund managers invest in various sectors and companies, they provide diversification benefits. This professional management means even inexperienced investors can utilise expert techniques without having to concern themselves with identifying individual stocks to invest in. Overall, ELSS funds offer tax efficiency, liquidity, and growth, making them an ideal choice to assist with any financial objectives.

 

ELSS Funds and Income Tax Saving

One of the most important tax-saving strategies in the Income Tax Act revolves around Section 80C, which allows any taxpayer to invest in a select list of financial instruments to lower their taxable income by up to ₹1,50,000. ELSS funds are tax-saving mutual funds that help you save income tax by clearly defining the terms of Section 80C while simultaneously reducing tax liability by investing in growth-oriented assets.

Let's say you are in a higher tax slab and invest ₹1,50,000 in the top ELSS funds; your taxable income will decrease by that amount. This investment can be made by any individual or Hindu Undivided Family (HUF) and applies to the old tax regime. ELSS Funds 2026 does not alter this, and thus, tax planning will continue to be based on this.

The steps involved are straightforward. Invest before the financial year-end (31st March), either as a lump sum or via SIP. Then, simply claim the deduction when filing your returns. However, the lock-in does mean that the deduction will only apply to investments held for three years. Withdrawals before then do not qualify for any tax benefits and may incur penalties.

When compared to other Section 80C options, such as EPF contributions or life insurance premiums, ELSS funds provide better liquidity and returns. For example, Fixed Deposits under Section 80C offer lower interest rates (6-7%) and come with a five-year lock-in, whereas ELSS funds can provide 15%+ returns in the same timeframe. Because of this, ELSS funds will assist you in saving income tax in the short term, as well as building wealth by 2026.

 

Best ELSS Funds for 2026

Regarding ELSS funds for 2026, the best funds are determined by analysing fund size, past performance, expense ratios, and risk. Here's a list of tax-saving mutual funds for 2026 with the best potential returns for you to consider. These funds are from firms that are well-reputed in the market and are known for consistent returns.

 

Fund Name	NAV (₹)	Expense Ratio (%)	1Y Returns (%)	3Y Returns (%)	5Y Returns (%)	Rating	Fund Size (₹ Cr)
SBI ELSS Tax Saver Fund	484.46	0.88	8.1	24.6	20.2	5	32,608
HDFC ELSS Tax Saver Fund	1,561.02	1.08	11.0	21.9	20.3	5	17,163
Motilal Oswal ELSS Tax Saver Fund	56.71	0.64	3.4	23.5	19.2	4	4,188
DSP ELSS Tax Saver Fund	160.20	0.73	10.9	21.3	18.5	4	17,609
Parag Parikh ELSS Tax Saver Fund	33.65	0.62	4.4	16.7	17.9	5	5,914
Bandhan ELSS Tax Saver Fund	179.89	0.66	9.6	17.0	17.9	4	7,333
Mirae Asset ELSS Tax Saver Fund	56.93	0.58	11.6	18.7	16.1	3	27,195
Canara Robeco ELSS Tax Saver Fund	-	-	-	-	-	-	9,022 (approx.)
Quant ELSS Tax Saver Fund	-	-	-	-	-	-	-
Invesco India ELSS Tax Saver Fund	-	-	-	-	11.96	-	2,771

 

Since SBI and HDFC are the top performers in 5-year returns, they are likely to provide long-term investors with the highest return potential. As an example, the SBI ELSS Tax Saver Fund is stable due to its large asset size and consistent performance, while the Quant ELSS Tax Saver Fund is considerably more aggressive in its performance. These tax-saving mutual funds are subject to market risks and should be discussed with a financial advisor, considering your individual risk profile.

 

Things to Consider While Choosing ELSS Funds

The selection of ELSS funds for 2026 depends on multiple criteria. Look for consistent annual returns over 15% for three to five years. Take note that returns are not guaranteed. Fund size is important. Large funds, more than ₹10,000 crore, from top to bottom support liquidity and stability. Look for low expense ratios. Net gains and overall costs to invest improve with expense ratios under 1%.

Consider your 80C limits and how ELSS funds contribute to your income tax savings. Look for direct funds to avoid marketing costs. Equity risk is also involved with ELSS mutual funds. Determine your risk appetite. Fund diversification and manager experience are also important for reducing risk. Aligning risk with diversification can improve your overall effectiveness.

 

Risks in ELSS Funds

These funds are not without risk. Look at overall market volatility. Losses can occur with ELSS funds if you have invested at the peak. The three-year lock-in is a risk in itself. If the market tanks three years from investment, the ELSS funds will be at risk. The lock-in period may induce losses in the near future if the funds have not performed well.

Investors risk losing money regardless of inflation. If the money returns do not exceed inflation, the gains are not real. The risk of an underperforming sector is greater the more a fund is invested in that sector. Still, the greater issue is alleviated with a diversified investment in tax-saving mutual funds. Investors need to see tax-saving ELSS funds as a long-term investment, with outcome improvements possible the longer they hold after the lock-in, especially into 2026.

 

 

Conclusion

Tax-saving ELSS funds in 2026 are a way to save income tax under section 80C while gaining access to an equity investment with the growth potential of ELSS funds. The best ELSS funds, including SBI, HDFC, and DSP, will contribute to a solid portfolio to meet your investment needs. But remember, tax-saving mutual funds are more than tax deductions; they are growth investments. Invest now to start growing your wealth. Make sure to keep track of your investments.

 

DISCLAIMER: This blog is NOT any buy or sell recommendation. No investment or trading advice is given. The content is purely for educational and information purposes only. Always consult your eligible financial advisor for investment-related decisions.