Synopsis: This article discusses the old and new income tax regimes and explains ELSS funds, their features, taxation, strategies, etc. The article also includes the Top 3 ELSS funds for 2026
As the 2026 tax year approaches, taxpayers are increasingly reconsidering their choices between the new and the old regimes. With rising incomes, volatile markets, and a growing emphasis on wealth creation along with tax efficiency, making informed investment decisions has never been more important. ELSS funds continue to be a very compelling option for individuals who opt for the old tax regime.
Old Tax Regime vs New Tax Regime
What Are ELSS Funds?
Equity-Linked Savings Schemes (ELSS) are a type of mutual fund that primarily invests in equities and offers tax savings under Section 80C. It’s an instrument where you can get the exposure of investing in equities at the same time, and save tax while doing it.
Key Features
- Mandatory lock-in period of 3 years.
- Suitable for long-term capital appreciation.
- Investments can be made either in a lump sum or through SIPs.
How it works: SEBI requires a minimum of 80% of the fund to be invested in equity instruments, and investors can invest in ELSS either through a lump sum or via Systematic Investment Plans (SIPs).
Types of ELSS Strategies
- Large-cap oriented: Focuses on stable, well-established companies; generally lower volatility with steady returns.
- Mid/small-cap oriented: Invests in emerging and smaller companies; offers higher growth potential but comes with higher risk.
- Balanced / Multi-cap: Diversified across large, mid, and small caps; aims to balance risk and return.
Tax Benefits: Under Section 80C, ELSS investments qualify for tax deduction up to ₹ 1.5 lakh in a financial year. Additionally, up to ₹ 1 lakh of long-term capital gains (LTCG) is exempted from tax per year, and additional gains over ₹1 lakh are taxed at 10%.
Ideal for: ELSS is ideal for young investors with a lengthy investment horizon ahead, who can benefit from the power of compounding. It’s also suitable for mid-career investors. It is perfect for investors aiming to build long-term wealth while saving on taxes.
Top 3 ELSS Funds
1. Motilal Oswal ELSS Tax Saver Fund (Launched in 2015)
- AUM: ₹4,341.48 crore.
- Portfolio Composition: 96.97% of its portfolio is invested in equity
- Large-Cap: 15.54%,
- Mid-Cap: 44.37%,
- Small-Cap: 35.99%
- Others: 4.1%
- Investment Strategy: Growth Focused. Holds its selections with confidence and occasionally makes changes to seize opportunities.
- Performance:
- CAGR (since inception): 15.41%
- 3-year returns: 22.46%
- 5-year returns: 18.93%
- Risk and Reward:
- Standard Deviation = 18.99%
- Sharpe Ratio = 0.83
Why consider it: This fund is ideal for investors seeking higher growth potential, who can handle short-term volatility, and who enjoy tax savings.
2. SBI ELSS Tax Saver Fund (Launched in 1993)
- AUM: ₹32,608.80
- Portfolio Composition: 92.06% of its portfolio is invested in equity.
- Large-Cap: 58.42%
- Mid-Cap: 19.2%
- Small-Cap: 13.18%
- Others: 9.2%
- Investment Strategy: Value-Focused, Buy and Hold Approach.
- Performance:
- CAGR (since inception): 12.22%
- 3-year returns: 23.73%
- 5-year returns: 20.63%
- Risk and Reward:
- Standard Deviation: 12.77%
- Sharpe Ratio: 1.26%
Why consider it: It’s ideal for investors seeking a stable, diversified large-cap portfolio that delivers consistent performance and offers tax benefits.
Also read: From ₹1 Lakh to ₹2.8 Lakh: Why Budget 2026 May Boost India’s Gold Reserve Fund
3. HDFC ELSS Tax Saver Fund (Launched in 1996)
- AUM: ₹17,163.37
- Portfolio Composition: 97.99% invested in equity.
- Large-Cap: 82.7%
- Mid-Cap: 6.06%
- Small-Cap: 10.97%
- Others: 0.27%
- Investment Strategy: Growth and Value-focused investing.
- Performance:
- CAGR (since inception): 21.95%
- 3-year returns: 21.15%
- 5-year returns: 21.21%
- Risk and Reward:
- Standard Deviation: 10.87%
- Sharpe Ratio: 1.24%
Why consider it: This fund is good for investors looking for steady growth with lower volatility. It combines long-term wealth creation and tax efficiency.
Conclusion
Choosing an income tax regime is no longer about tax slabs, but it is about personal financial goals. For investors who choose the Old tax regime, ELSS funds are the best option to build wealth while reducing tax liability. As the 2026 tax year is coming, investors should focus on selecting the right ELSS fund that aligns with their long-term financial goals.
Written by Nila Maria Jacob
