26 ELSS Mutual Funds Achieve Consistency But Struggle in 2025: Insights and Investment Strategies

The world of Equity Linked Savings Schemes (ELSS) has been a beacon for investors seeking tax benefits under Section 80C of the Income Tax Act. Recently, a significant achievement was noted among ELSS funds: 26 of these tax-saving mutual funds have consistently delivered positive returns over the past three calendar years. However, as of 2025, this trend has seen a reversal, with all 39 ELSS schemes in the category yielding negative returns, ranging from -0.43% to -17.02%. This shift presents both challenges and opportunities for investors, especially those navigating the new tax regime.

Understanding ELSS Funds

ELSS funds are equity mutual funds that offer tax deductions of up to ₹1,50,000 per financial year. They come with a three-year lock-in period, which can be both a challenge and a benefit for investors. The lock-in ensures that investors remain committed, potentially benefiting from long-term market trends. However, it also limits liquidity compared to other mutual funds.

Key Benefits of ELSS Funds:

• Tax Savings: Optimize your tax liabilities through Section 80C deductions.
• Long-term Growth: Historically, equity investments have provided higher returns over longer periods.
• Diversification: Spread risk across various sectors and companies.

Performance Analysis of ELSS Funds

In the past three years, several ELSS funds have demonstrated impressive consistency:

• Bandhan ELSS Tax Saver Fund and DSP ELSS Tax Saver Fund have been among those consistently delivering positive returns, though they have seen losses in 2025.
• Franklin India ELSS Tax Saver Fund has also maintained a positive streak over the last three years but has faced significant challenges in 2025 with a negative return of around 5.12%.
• HDFC ELSS Tax Saver Fund has offered positive returns in 2022, 2023, and 2024 but is currently facing a minimal negative return of about 0.43% in 2025.

The following funds have shown remarkable resilience over the past few years but are facing difficulties in 2025:

• Kotak ELSS Tax Saver Fund with a negative return of around 6.96%.
• Mahindra Manulife ELSS Tax Saver Fund facing losses of about 2.19%.
• Mirae Asset ELSS Tax Saver Fund and Motilal Oswal ELSS Tax Saver Fund, both of which have been impacted negatively, with returns of -3.86% and -16.54%, respectively.

Challenges in 2025

Despite their past success, ELSS funds have faced significant challenges in 2025. This downturn can be attributed to several factors:

• Market Volatility: The equity market has experienced increased volatility, affecting returns across the board.
• New Tax Regime: The introduction of the new tax regime has reduced the appeal of tax-saving investments like ELSS, as the benefits under Section 80C are not applicable for those opting for this regime.
• Investment Trends: There has been an outflow from ELSS funds, reflecting a decrease in investor interest due to the aforementioned factors.

Key Figures in 2025:

• Performance Range: Negative returns across all ELSS funds, from -0.43% to -17.02%.
• Inflow/Outflow: The category witnessed an outflow of Rs 2,030 crore in the first half of the fiscal year.

Investment Strategies Moving Forward

Despite the current setbacks, ELSS funds remain a viable option for long-term wealth creation. Here are some strategies for investors:

For Existing Investors:

• Hold Positions: If you have already invested, it might be beneficial to hold, as long-term growth potential remains high.
• Systematic Investment Plan (SIP): Continue SIPs to average out market fluctuations.

For New Investors:

• Diversification: Allocate a portion of your portfolio to ELSS funds to benefit from tax advantages and potential long-term gains.
• Risk Management: Consider investing through SIPs to mitigate market timing risks.

Passive vs. Active Funds

In recent years, the debate between active and passive ELSS funds has gained traction. While active funds aim to outperform benchmarks, passive funds offer lower costs and simplicity.

• Active Funds: Suitable for experienced investors who track performance closely, as they offer higher potential for outperformance.
• Passive Funds: Ideal for cost-conscious or new investors seeking stability and lower expense ratios.

Conclusion

The recent downturn in ELSS funds presents a mixed bag of opportunities and challenges for investors. While past performance is not a guarantee of future success, the resilience of these funds over the last three years suggests that they still have a role to play in a diversified investment portfolio. As the market continues to fluctuate, investors should focus on long-term strategies, including SIP investments and diversification across different asset classes.

For those looking to optimize tax savings under Section 80C, ELSS funds still offer a unique combination of tax benefits and potential growth, even if their appeal has been somewhat diminished by the new tax regime. As always, a balanced approach that considers both market volatility and financial goals is crucial for maximizing investment returns.