Two-third ELSS schemes fail to beat benchmarks. How effective is it as a tax-saving tool?

Around 19 ELSS mutual fund schemes have failed to beat their respective benchmarks in the three and five year horizon, data crunching by ETMutualFunds showed. Around 34 schemes have completed five years in the market.

Axis ELSS Tax Saver Fund, the largest scheme in the ELSS category based on assets managed, failed to beat its benchmark in three and five year horizons. The scheme manages assets of Rs 33,526. 42 crore.



Aditya Birla SL ELSS Tax Saver Fund also failed to beat its benchmark in both the horizons. Groww ELSS Tax Saver Fund (Earlier known as Indiabulls Tax Savings Fund), the smallest scheme in the ELSS category, failed to beat its benchmark. The scheme manages assets of Rs 43.23 crore.

Outperformers in the category

Around nine ELSS schemes have managed to beat their respective benchmarks in three and seven year horizons. SBI Long Term Equity Fund, the oldest scheme in the ELSS category, has managed to beat its respective benchmark in both the horizons.


The ELSS schemes are benchmarked against NIFTY 500 - TRI, S&P BSE 500 - TRI, and S&P BSE 100 - TRI.

What should investors do?

ELSSs or tax saving schemes help investors to save income tax under Section 80C of the IT Act. One can invest a maximum of Rs 1.5 lakh in a financial year and claim deductions on investments in a financial year. ELSS funds invest in stocks and carry high risk. These schemes have a mandatory lock-in period of three years. Other investment options under Section 80C have longer holding period.

ELSS or tax saving schemes enjoy the status of EEE (Exempt-Exempt-Exempt). EEE status means that the amount invested, income earned, and the maturity amount is exempted from income tax.

One should not make investment or redemption decisions based on the above exercise. In the three-year horizon, around 66% equity schemes have failed to beat their respective benchmarks. In five-year, 63% equity schemes have failed to beat their respective benchmarks. In simple words, not only the ELSS category but the overall equity category has underperformed in the three and five year horizon.

Note, the above exercise is not a recommendation. The main purpose of the exercise is just to find out how the ELSS schemes have performed vis-a-vis their benchmarks in the three year and five year horizons.

If you are looking for recommendations, see:
Best tax saving mutual funds or ELSS to invest in 2024