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• Equity Linked Savings Schemes (ELSS) mutual funds have grown 2.5 times in the past five years, with some delivering impressive annualised returns.
• There are 42 ELSS schemes with total Assets Under Management (AUMs) amounting to ₹2.57 lakh crore.
• The top-performing ELSS schemes have delivered between 20-32 percent annualised return, but historical returns do not guarantee future returns.
• The growth in ELSS mutual funds indicates a positive trend in the financial market, but investors should seek professional advice before making any investment decisions.

In the past five years, the investment landscape has seen a significant shift towards Equity Linked Savings Schemes (ELSS) mutual funds. These funds have grown by 2.5 times, with some delivering impressive annualised returns. For instance, the Quant ELSS Tax Saver Fund delivered a 32.02 percent annualised return, while the Motilal Oswal ELSS Tax Saver Fund and the Bank of India ELSS Tax Saver Fund provided a CAGR return of 24.14 percent and an annualised return of 25.87 percent, respectively.

ELSS funds, known for their three-year lock-in period, are currently eligible for tax deduction under Sec 80C of the Income Tax Act up to ₹1,50,000. These schemes have gained popularity due to their potential to grow multifold over a long period, thanks to the power of compounding. The gains earned in the initial years are added to the corpus, leading to considerable growth over time.

The Association of Mutual Funds in India (AMFI) data as of September 30, 2024, reveals that there are 42 schemes under the ELSS category with total Assets Under Management (AUMs) amounting to ₹2.57 lakh crore.

ELSS Performance and Future Returns

The top-performing ELSS schemes have delivered between 20-32 percent annualised return. This means if someone invested ₹one lakh in a scheme five years ago, it would have grown to ₹2.48 lakh over a period of five years. At an annualised rate of 32 percent, an investment of ₹1 lakh grows to ₹4 lakh in five years.

However, it's important to note that historical returns, although indicative, do not guarantee future returns. Just because a scheme has performed exceptionally well in the recent past doesn't mean it will continue to perform at the same pace in the future. Therefore, it's crucial to speak to a SEBI-registered investment advisor before making any investment-related decision.

Investment Trends and Tax Implications

In addition to ELSS funds, other investment avenues have also seen significant growth. For instance, the mutual fund industry saw a notable decrease in net inflows for the month of August, to ₹1.08 lakh crore against ₹1.89 lakh crore in July. This decline was primarily driven by a significant drop in inflows into debt mutual funds. Meanwhile, sectoral funds saw an inflow of ₹18,117 crore in August against ₹18,383 crore in July.

The steadily increasing Systematic Investment Plan (SIP) contribution of Rs. 23,547 crores in August 2024 highlights the shifting investor sentiment towards disciplined and long-term wealth accumulation. The number of SIP accounts stood at the highest ever at 9,61,36,329 in August 2024 as compared to 9,33,96,174 in July 2024.

In the context of tax, Budget 2024 announced new tax slabs under the new income tax regime. It also increased the standard deduction limit to Rs 75,000 from Rs 50,000 under the new regime. Budget 2024 also simplified capital gains tax for investors.