Picking an ELSS fund in the last week of March is how most Indian investors end up overpaying for mediocre returns. The fund works only if you choose it early, hold the discipline for three years, and match it to the tax regime you actually file under. This piece walks through what separates a strong ELSS pick from a rushed one, using real fund data and the tax rules that apply this year.
Why ELSS funds still matter before March 31
Section 80C lets you claim a deduction of up to ₹1.5 lakh if you file under the old tax regime, and ELSS is one of the few instruments in that basket that invests in equities rather than fixed income. ELSS invests at least 80% in equities and has a 3-year lock-in period. That three-year hold is the shortest among all Section 80C options, which is exactly why ELSS attracts investors who want liquidity sooner than PPF or a tax-saver fixed deposit allow.
Consider the Bandhan ELSS Tax Saver Fund as a concrete case. The Bandhan ELSS Tax Saver Fund, launched on December 26, 2008, has an AUM of Rs.6,857.69 crore. It has delivered strong average annualized returns of 18.49% over 3 years and 17.21% over 5 years, outperforming benchmarks. That track record matters because the fund works as a wealth-building tool, not only as a once-a-year tax chore.
How to compare ELSS funds before you invest
Do not pick a fund from a random list. Compare it against its category size and its own history first. The Mirae Asset ELSS Tax Saver Fund, launched in December 2015, manages Rs.24,347.21 crore in assets. It has delivered strong returns averaging 20.22% over 3 years and 19.8% over 5 years.
These numbers mean more once you see them against the whole category. As of March 2026, open-ended ELSS funds managed approximately ₹2.17 lakh cr in assets. A single fund holding ₹24,000 crore carries real weight inside that pool, which tells you the fund has survived multiple market cycles rather than one good year. Check three figures before you invest: the fund's assets relative to its category, its three-year and five-year return history, and its expense ratio under the direct plan.
The lock-in rule that trips up SIP investors
Many investors assume the three-year lock-in starts with their first SIP instalment and covers the whole investment at once. That assumption is wrong, and it catches out even experienced SIP investors. ELSS schemes have a mandatory three-year lock-in period, and in HDFC ELSS Tax Saver Fund, each investment remains locked for three years from allotment, meaning individual SIP instalments have separate withdrawal eligibility dates.
A SIP that runs from April 2024 to March 2027 means your final instalment stays locked until March 2030, three full years after it was invested. Plan your SIP so it finishes well before you expect to need the money. If you want full liquidity by a fixed year, start the SIP early enough that the last instalment also clears its own three-year hold.
The honest problem: ELSS loses its edge under the new regime
The strongest objection to ELSS is simple and worth taking seriously. From FY 2023-24, the New Tax Regime is the default regime for all taxpayers. The new regime does not permit the Section 80C deduction at all, so if you do not actively choose the old regime while filing, your ELSS investment earns no tax benefit beyond its market returns.
The gap is not small. For a taxpayer in the 30% bracket, a full ₹1.5 lakh 80C deduction saves approximately ₹46,800 in taxes. Under the new regime, that saving disappears entirely, and ELSS becomes a plain equity fund with a mandatory lock-in and no compensating tax break. This does not make ELSS worthless, but it does remove its main reason for existing in many portfolios. If your income and deduction profile favour the new regime, buy ELSS only for its equity exposure, and run the numbers for both regimes before March rather than after you have already invested.
What to check before you invest in March
Your ELSS gains are not entirely tax-free either, even once the lock-in ends. Long-term capital gains from equity mutual funds are taxed at the rate of 12.5% on gains from equities exceeding ₹1.25 lakh in a financial year. This 1.25 lakh threshold applies to eligible equity long-term capital gains in the financial year as a whole, not as a separate exemption for every mutual fund or transaction.
Before March 31, work through this sequence. Confirm which tax regime you will file under for the year, because the 80C deduction only applies to the old regime. Pick a direct plan over a regular plan to cut the expense ratio, compare three-year and five-year returns against the category average rather than a single peer fund, and start a SIP instead of a lump sum if you are investing after January so each instalment still clears its own three-year lock-in on a schedule you can plan around.
Once you match the fund to the correct tax regime and respect the lock-in on each instalment, ELSS stops being a last-minute March purchase. It becomes an equity allocation that happens to carry a modest tax benefit for some investors, which is a steadier way to hold it for the next decade.
