ELSS Vs Index Mutual Funds: Want tax saving or tension-free investment? Which fund will make you rich?

Last Updated:December 07, 2025, 13:27 IST

If you want to create a good fund in the long term, equity mutual funds are considered a great option. Of these, two categories ELSS and Index Mutual Fund are especially popular among investors. But many people have difficulty in understanding which of the two options is better for them.

According to the latest data from AMFI, index funds are more popular. At present there are 345 index fund schemes in the market, whose total AUM is Rs 3.20 lakh crore. Whereas there are only 42 ELSS funds and their total AUM is Rs 2.53 lakh crore.

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Equity Linked Saving Scheme (ELSS) funds offer equity exposure along with tax savings, while index funds track the performance of the overall market at low expense.

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ELSS funds were earlier only active, but by giving permission in May 2025, SEBI opened the way for launching passive ELSS funds also. ELSS have a lock-in period of 3 years, whereas index funds have no lock-in.

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Experts say that both the options are good, but the choice entirely depends on your needs, tax situation and investment behavior.

ELSS is great for investors who want to save tax under Section 80C by staying in the old tax regime.

ELSS funds are generally actively managed, that is, their aim is to outperform the index. But it is important to choose the right fund. For this, the past performance, risk and investment style of the fund should be seen.

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There is a lock-in period of 3 years for ELSS whereas there is no lock-in for index funds i.e. you can sell anytime.

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Both ELSS and index funds are strong instruments for building wealth in the long term. If you want long term investment with low expenses then index fund is considered better and if you want stable returns like the market then index fund is considered better.