Top tax saving mutual funds on 3-year returns

While we all work hard to make a living, engaging in sensible tax planning is equally important. 

For tax-saving purposes, there are a variety of investment avenues. Among them are tax-saving mutual funds or equity-linked savings schemes (ELSS). 

Tax saving mutual funds or ELSS are categorised as open-ended equity schemes that invest a minimum of 80% of their total assets in equity and equity-related instruments as per the equity-linked savings scheme, 2005.

The investment objective of a tax saving mutual fund is, broadly, to achieve long-term capital appreciation or growth.

And in this endeavour, these funds or ELSS invest across market largecaps, midcaps, and smallcaps, as well as across sectors.

A fund may pursue a value style or growth style of investing or even a mix of both, depending on the investment strategy.

Unlike other equity mutual funds, ELSS funds have a lock-in of 3 years. This calls for careful selection when selecting tax saving mutual funds.

In this editorial, we take you through the potentially top tax saving mutual funds in India or ELSS, that have fared well on 3-year and 5-year rolling returns, as well as risk ratios – 3-year standard deviation, Sharpe ratio, Sortino ratio, and up/down capture ratio.

#1 SBI ELSS Tax Saver Fund 

This fund was launched in March 1993 as SBI Magnum Taxgain Scheme -1993. It was, in February 2020, renamed as SBI Long Term Equity Fund.

Subsequently, in April 2025, to make it identifiable as an ELSS or tax saving mutual fund and following the regulatory nomenclature, it was once renamed as SBI ELSS Tax Saver Fund. 

It’s one of the oldest tax-saving mutual funds with a performance track record of 32 years. Having witnessed various market phases, today, as per the August 2025 portfolio, the AUM of the fund is over Rs 299 bn, the second largest in the category. 

The fund follows a value-conscious investment approach, maintaining a well-diversified portfolio of stocks across different sectors and market caps. 

It invests in well-established largecap companies but does not stay away from investing in midcaps and smallcaps. 

The  fund uses a mix of ‘top-down’ and ‘bottom-up’ approaches to pick stocks, wherein it focuses on those offering a decent margin of safety.

The fund manager looks for companies trading below their intrinsic value, and when approaching sectors and themes, emphases those expected to grow over the medium to long term.

SBI Long Term Equity Fund usually holds around 60-70 stocks in its portfolio, spread across market caps and sectors. 

As per the August 2025 portfolio, it owns 72 stocks, of which 59% are largecaps, around 22% midcaps, and 12% smallcaps. Cash & cash equivalents are around 6% of the total assets.

The top 10 stocks comprise 36.9% of the portfolio and include heavyweights such as HDFC Bank (9.1%), Reliance Industries (5.1%), ICICI Bank (3.5%), etc. 

Among a diverse range of sectors, the top 3 are banks (22.3%), auto & ancillaries (10.2%), and IT (9.0%), comprising 40.6% of the portfolio. 

Overall, the fund follows a ‘buy-and-hold’ investment strategy, as reflected by a low portfolio turnover ratio of 16-25% in the last one year. 

With this strategy, the fund has delivered an impressive performance, delivering 25.6% and 27% compounded annualised rolling returns over 3 years and 5 years, respectively, which are noticeably higher than the category average and the Nifty 500 -TRI. 

The fund has kept the risk contained (standard deviation of 12.52) and rewarded investors well on a risk-adjusted basis (as reflected by the sharpe and sortino ratios of 0.41 and 0.95, respectively).

#2 HDFC ELSS Tax saver

Launched in March 1996 as HDFC Tax Saver Fund, it’s one of the oldest ELSS in India. In October 2023, the name was changed to HDFC ELSS Tax saver to bring in uniformity in naming conventions of ELSS, as per the regulatory guidelines.

The fund has an established performance track record of over 29 years and has witnessed numerous market cycles. Today, its AUM is over Rs 165 billion, the fourth largest in the ELSS category.

The fund manager prefers to make high-conviction investments following a blend of growth and value style of investing, identifying stocks with attractive valuations.

The fund aims to hold a reasonably diversified portfolio across major industries, economic sectors, and market capitalisation that offers an acceptable risk-reward balance.

Companies are chosen on the basis of growth rates, competitive advantages, strong management with the ability to capitalise on the opportunities while managing risk, and financial strength. 

The fund also considers the track record of corporate governance, ESG sensitivity, and transparency. 

It primarily maintains a largecap biased portfolio with tactical allocation to midcaps and smallcaps. Usually, about 40-50 stocks are held in the portfolio.

As per the August 2025 portfolio, the fund has 53 stocks, of which 79% are largecaps, about 3% midcaps, and 11% smallcaps. Cash & cash equivalents are currently around 6% of the total assets.

The top 10 stocks comprise 55.9% of the portfolio and include names HDFC Bank (9.6%), ICICI Bank (9.3%), Axis Bank (7.6%), etc. 

The top 3 sectors of the fund are banks (35.5%), auto & ancillaries (15.9%), and healthcare (9.5%), comprising 61.1% of the portfolio. It has exposure to a mix of cyclical and defensive sectors.

The fund holds its portfolio with a long-term perspective and avoids churning much. The portfolio turnover ratio has ranged between 19% and 40% in the last one year. 

The performance has made a comeback since 2022, and with the strategy followed, it’s now well-positioned to capitalise on the broad-based equity market rally.

HDFC ELSS Tax saver has delivered a compounding annualised rolling returns of 23.2% and 25.2%, over 3 years and 5 years, respectively, outperforming the category average and the Nifty 500 – TRI. It is among the top quartile performers in the ELSS category.

The fund has exposed its investors to less risk than many of its peers (as reflected by the standard deviation of 11.39) and rewarded them attractively on a risk-adjusted basis (as denoted by the sharpe and sortino ratios of 0.40 and 0.93, respectively).

#3 DSP ELSS Tax Saver Fund

Launched in January 2007 as DSP Tax Saver Fund, this scheme was renamed DSP ELSS Tax Saver Fund from December 2023 to comply with the new nomenclature guidelines of the category.

This fund is popular among investors. Its AUM has increased over the years, and as per the August 2025 portfolio, it’s nearly Rs 165 bn, the fifth largest in the category.

The fund follows a bottom-up approach to stock picking with consideration given to low price-to-earnings, price-to-book, and price-to-sales ratios, as well as improving margins, asset turns, and cash flows, amongst others.

As a part of its research, the fund considers the following factors, among others:

–        Historical and current financial conditions, 

–        Potential for value creation/unlocking of value and its impact on earnings growth 

–        Capital structure

–        Business prospects 

–        Policy environment

–        Strength of management 

–        Responsiveness to business conditions

–        Product profile, brand equity, market share, competitive edge, research, and technological know-how 

–        Transparency in corporate governance

DSP ELSS Tax Saver Fund seeks both value and growth opportunities. It usually has a fairly diversified portfolio of 60-65 stocks.

As per the August 2025 portfolio, it has 61 stocks, of which 68% are largecaps, nearly 16% midcaps, and 14% smallcaps. Cash & cash equivalents are currently about 2% of the portfolio.

The top 10 stocks are 44.2% of the portfolio and include names such as HDFC Bank (6.9%), SBI (6.7%), ICICI Bank (6.2%), etc.

The top 3 sectors are banks (29.3%), healthcare (9.1%), and IT (8.8%), comprising 47.2% of the portfolio. 

This fund also follows a buy-and-hold approach. Its portfolio turnover has ranged between 30%-40% in the last one year.

The strategy followed by the fund has placed it in the top quartile performers in the category. The 3-year and 5-year rolling returns compounded annualised rolling returns of the fund are 20.5% and 24.8%, respectively, better than the category average and the Nifty 500 – TRI.

While the fund has exposed its investors to higher risk (standard deviation of 12.81) than its benchmark index, it has compensated investors decently on a risk-adjusted basis (as reflected by the sharpe and sortino ratios of 0.32 and 0.71), which are better than the category average and the Nifty 500 – TRI.

Performance of Tax Saving Mutual Funds or ELSS

Scheme Name	Absolute (%)	CAGR (%)		Risk Ratios
	1 Year	3 Years	5 Years	SD Annualised	Sharpe	Sortino
SBI ELSS Tax Saver Fund	16.82	25.56	27.05	12.52	0.41	0.95
HDFC ELSS Tax saver	17.06	23.21	25.16	11.39	0.40	0.93
DSP ELSS Tax Saver Fund	17.64	20.53	24.82	12.81	0.32	0.71
Category Average*	12.93	17.95	22.35	12.95	0.28	0.56
Nifty 500 – TRI	10.91	16.13	21.39	12.77	0.23	0.47

Data as of 29 September 2025

Rolling period returns are calculated using the Direct Plan-Growth option. Returns over 1 year are compounded annualised.
Standard Deviation indicates total risk, while the Sharpe Ratio and Sortino Ratio measure the Risk-Adjusted Return. They are calculated over 3 years, assuming a risk-free rate of 6% p.a.

*All actively managed ELSS mutual funds are considered to compute the category average returns. Please note that this table represents past performance. Past performance is not an indicator of future returns. The securities quoted are for illustration only and are not recommendatory. Speak to your investment advisor for further assistance before investing. Mutual Fund investments are subject to market risks. Read all scheme-related documents carefully.

Source: ACE MF

Conclusion

Tax saving mutual funds or ELSS are possibly a suitable choice if you are a risk taker, do not mind earning market-linked real returns, and have an investment horizon of 3-5 years or more. 

It will potentially help you get two birds in one stone, i.e. create wealth over the long term and save tax in the year of investment.

Under the old tax regime, the investment made entitles you to a deduction of up to Rs 1.5 lakh under Section 80C of the Income Tax Act 1961.

Happy investing.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here…

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