Which ELSS Mutual Fund Should You Invest In? (How to Actually Decide)

Last Updated on April 23, 2026 by Hemant Beniwal

“Best” is a word for eulogies. For investments, the word you want is “suitable.”

Every year in January and February, the same question floods into my inbox: “Which is the best ELSS fund for this year?”

I have been answering this question for 25 years. And my answer has never changed: there is no best ELSS fund. There is only the fund that is appropriate for your specific situation, held for long enough that performance has time to develop.

The question itself reveals a misunderstanding of how equity works. Let me explain.

First: Is ELSS Relevant for You Under the New Tax Regime?

This is the most important question before anything else. From FY2023-24, the new tax regime became the default regime for all taxpayers. Under the new regime, deductions under Section 80C – including ELSS – are not available.

If you have opted for the old regime (either because you have a home loan, HRA, or other significant deductions that make the old regime more beneficial), ELSS remains one of the most attractive instruments in the 80C basket. If you are under the new regime, ELSS has no tax advantage – though it remains a perfectly good equity fund that you can invest in for long-term wealth creation without the lock-in constraint of the old ELSS framework.

Check with your employer or CA which regime applies to you before investing specifically for the 80C benefit.

Why “Best ELSS” Is the Wrong Question

Consider this: if someone had invested Rs 10,000 in ELSS funds at the market peak in January 2008 (Sensex at 20,800) and withdrawn exactly 3 years later in January 2011 (Sensex at 19,100), some funds would have given negative returns. The “best” fund of 2006 or 2007 may have been the worst performer for someone who happened to invest at the peak and exit at the minimum lock-in.

The problem with selecting based on recent returns is survivorship bias and mean reversion. Funds that top the charts in any given year are often there partly because they concentrated in a sector or theme that happened to outperform. That concentration can become a liability in the next cycle.

The investors who made money in ELSS are not the ones who picked the “best” fund each year and switched. They are the ones who picked a reasonable fund from a reliable fund house, invested through SIP, and held through the lock-in and beyond.

What Rolling Returns Tell You (That Point-to-Point Returns Don’t)

Point-to-point returns (e.g., “5-year return ending March 2024”) are heavily influenced by the starting and ending points. A fund that happened to be high at your measurement start and low at the end looks terrible – but may be perfectly good over most other 5-year periods.

Rolling returns eliminate this problem. A 3-year rolling return calculates the annualised return for every possible 3-year period – starting January 2010, February 2010, March 2010, and so on through to the present. This gives you a distribution of outcomes: how often has this fund delivered positive returns over 3-year periods? What was the worst 3-year period? What percentage of 3-year periods gave more than 12%?

Looking at the rolling return chart above: there are negative 3-year periods – all of them starting at or near bull market peaks. But as the holding period extends to 5 years, negative periods almost disappear. The lesson is not which fund had the best rolling returns – it is that time horizon matters more than fund selection.

How to Actually Choose an ELSS Fund

There is no magic formula, but there are sensible criteria. Look at fund houses with long track records and professional fund management – the AMC’s overall reputation and investment process matters more than any individual fund manager. Look at consistency: a fund that has delivered 12-14% CAGR across multiple market cycles is more trustworthy than one that delivered 25% in one year and 3% over 10 years.

Avoid concentration in a single fund. Spreading across 2 established ELSS funds from different fund houses reduces the risk of one fund manager’s bet going wrong. More than 2-3 ELSS funds creates unnecessary complexity without meaningful diversification benefit.

Most importantly: do not change your ELSS fund because it underperformed for 1-2 years. Fund performance is cyclical. The manager who avoided IT stocks in 2021-22 (and therefore underperformed) may be the same one who outperforms when IT corrects. Switching funds based on recent performance is the surest way to always be in yesterday’s winner and miss tomorrow’s.

ELSS vs Other 80C Options

For investors under the old regime comparing 80C instruments: ELSS is generally the best long-term wealth creator in the 80C basket. PPF gives tax-free returns but at around 7.1% (subject to periodic revision), which barely beats inflation over long periods. Tax-saving FDs are fully taxable on interest. Endowment and money-back plans from insurance companies typically return 4-5% – below inflation after tax.

ELSS has the shortest lock-in (3 years vs 15 for PPF, 5 for tax FD) and the highest long-term return potential. The trade-off is equity volatility – your portfolio value will fluctuate, especially in the first year or two.

The lock-in, which most investors resent, is actually a gift. It forces the holding period that equity needs to work. The investor who cannot sell during the March 2020 crash (because they are locked in) is exactly the investor who benefits most from the subsequent recovery.

Read: ELSS vs PPF: Which Is Better for Tax Saving?

Stop looking for the best ELSS fund. Pick a consistent fund from a reliable AMC, set up a SIP, and hold through the lock-in and beyond. The return you earn will be determined far more by how long you stay invested than which specific fund you chose.

Consistency beats selection. Time beats timing.