Investing in Equity Linked Savings Schemes (ELSS) funds offers you tax benefits of up to ₹1.5 lakh under section 80C and potential for long-term wealth creation. But this is possible only when you invest in the right fund as per your risk and return needs. As a result, analyzing the options becomes very important. This blog shares the stepwise process that will help you to pick an ELSS fund based on risk and return.
Steps to Pick the Best ELSS Fund Based on Risk and Returns
Picking the best ELSS mutual fund based on risk and returns is not an easy task. There are various steps and factors that you must consider to ensure the choice aligns with your goals as well.
So, here are the steps you should follow to make a well-informed decision:
1. Define Your Financial Goals
Start by finding your goal for investment. Whether it’s wealth creation, retirement planning, or a major financial milestone. This will define the type of ELSS fund you should choose. Long-term goals can handle more risk, while short-term needs may require stability.
2. Assess Your Risk Appetite
The risk appetite of every investor varies. If you’re okay with volatility, a fund with more mid and small-cap exposure may suit you. However, if you prefer steady growth with lower risk, go for funds that invest in large-cap stocks. Knowing this will help you in sorting funds better.
3. Review Historical Performance
Examine the fund’s returns over 3, 5, and 10 years. Consistent outperformance against benchmarks and peers across market cycles is a sign of strong management. Avoid funds that have been underperforming for a while.
4. Evaluate Fund Composition and Costs
Examine the fund’s allocation across large, mid, and small-cap stocks to understand its risk profile. Review the expense ratio, as a lower ratio is better for long-term gains. Ensure to check all key indicators against industry standards.
5. Assess Fund Manager’s Track Record
A fund manager’s experience and past performance matter. Select funds managed by professionals with a history of navigating market ups and downs. Their expertise and investment style can significantly influence your fund’s risk and return profile.
6. Perform Peer Comparison
A fund’s performance should always be compared with others in the same category. Look at returns, volatility, and expense ratio. See how it has performed during different market phases. This will help you shortlist the best options as per your needs.
7. Decide Your Investment Mode
Choose whether you wish to go for ELSS through a lump sum or a SIP. Lump sum suits when markets are low; SIP works well for steady investing and managing risk. Based on your surplus and planning, pick one of these options.
8. Monitor and Review Your Investment
Regularly review your ELSS fund’s performance to ensure it aligns with your goals. If it underperforms or your needs change, consider switching after the lock-in to stay on track.
Best ELSS Funds in 2025
If you’re planning to invest in ELSS funds that have delivered strong and consistent returns, here are a few top-performing options to consider:
| Fund Name | AUM(in ₹ Cr. as of 10 June 2025) | NAV (in ₹ as of 10 June 2025) | 3-Year Return (%) | 5-Year Return (%) |
| Quant ELSS Tax Saver Fund | 11329.06 | 411.63 | 21.48 | 35.56 |
| SBI Long Term Equity Fund | 28506.07 | 474.87 | 29.25 | 29.48 |
| HDFC Tax Saving Fund | 16453.67 | 1514.89 | 26.03 | 28.05 |
| DSP ELSS Tax Saver Fund | 16,973.99 | 155.847 | 24.57 | 27.53 |
| Nippon India ELSS Tax Saver Fund | 15,291.63 | 141.73 | 22.83 | 26.76 |
Conclusion
ELSS funds offer a smart way to save tax while building long-term wealth. You can claim a deduction under Section 80C, and the 3-year lock-in helps build investment discipline.
With the right fund choice based on your risk and return needs, ELSS can be a strong addition to your portfolio. Stay invested, review regularly, and let your money grow.
