Best ELSS Mutual Funds for NRIs - Tax Saving Guide

Every March, our WhatsApp community lights up with the same question: "Which ELSS fund should I pick to save tax?"

Here's what most NRIs don't realize. ELSS isn't just about ticking a tax-saving box. It's one of the few Section 80C options that NRIs can actually use. PPF? Closed to new NRI accounts. NSC? Not available. 

But ELSS? Fully accessible, with the potential to beat inflation and grow your wealth while you save tax.

At Belong, we've helped many UAE-based NRIs navigate this exact decision. This guide breaks down everything: top-performing funds, NRI eligibility, tax math, and the real returns you can expect.

What is ELSS and Why Should NRIs Care?

ELSS stands for Equity Linked Savings Scheme. In simple terms, it's a mutual fund that invests primarily in stocks (at least 80% in equity) while giving you tax benefits.

Here's what makes ELSS unique for NRIs:

It's the only mutual fund category with tax benefits. Under Section 80C of the Income Tax Act, investments up to ₹1.5 lakh qualify for tax deduction.

Shortest lock-in among 80C options. Your money is locked for just 3 years. Compare this to PPF (15 years) or tax-saving FDs (5 years).

Potential for higher returns. Unlike fixed-return instruments, ELSS invests in equity markets. The average 10-year annualized return for ELSS funds is about 12.61% per annum, according to Stable Money.

👉 Tip: ELSS tax benefits are only available under the old tax regime. If you've chosen the new tax regime, ELSS won't help reduce your tax liability. Use our Residential Status Calculator to check your status first.

How Much Tax Can NRIs Actually Save with ELSS?

Let me show you the real math.

If you're in the 30% tax bracket (income above ₹10 lakh) and invest the full ₹1.5 lakh in ELSS, your tax savings work out to ₹46,800 annually. That's money that stays in your pocket instead of going to the taxman.

Source: Income Tax Department

Here's a scenario we see often. Priya, an NRI in Abu Dhabi, earns ₹8 lakh annually from rental income in Bangalore. Without ELSS, her tax liability would be around ₹52,500. With a ₹1.5 lakh ELSS investment, she brings it down to ₹21,300. That's over ₹31,000 saved every year.

Top ELSS Funds Ranked by 5-Year Returns (2025)

Why 5-year returns? Because ELSS has a 3-year lock-in, but smart investors stay longer. A 5-year horizon smooths out volatility and shows consistent performers.

Here are the top funds based on performance data as of October 2025:

Data source: Scripbox as of October 2025

Important disclaimer: Past performance doesn't guarantee future returns. Markets fluctuate, and ELSS funds carry equity risk.

A Closer Look at Each Top Fund

1. Quant ELSS Tax Saver Fund

This fund has been the category topper in recent years. Quant follows an aggressive investment strategy with dynamic allocation across market caps. The fund managers take bold calls that have paid off in rising markets.

However, higher returns come with higher volatility. This fund suits investors with a higher risk appetite aiming for maximum growth.

Minimum investment: ₹500 (lump sum or SIP)

2. Motilal Oswal ELSS Tax Saver Fund

This fund follows the "Buy Right, Sit Tight" philosophy. It holds a concentrated portfolio of high-conviction stocks. The 3-year CAGR of 27.7% speaks for itself.

The fund typically invests in quality companies with strong fundamentals. It's a solid choice for NRIs who want consistent performance without wild swings.

👉 Tip: Motilal Oswal AMC accepts investments from NRIs, including those in the UAE. Check their official website for current KYC requirements.

3. HDFC ELSS Tax Saver Fund

This is one of the pioneers in the ELSS category, launched in 1996. The fund is managed by Roshi Jain, a well-known name in the fintech industry. With an AUM of over ₹16,000 crores, it's among the largest ELSS funds.

The fund maintains a balanced approach with exposure to large-cap and mid-cap stocks. Suitable for conservative investors who want stability with growth.

4. SBI ELSS Tax Saver Fund

The oldest fund in the ELSS category, launched in March 1993. With over three decades in Indian markets, it has delivered approximately 17.31% returns per annum since inception.

Managed by Dinesh Balachandran since 2016, this fund invests at least 80% in equities with up to 20% in money market instruments. The large AUM of ₹30,420 crores reflects investor trust.

5. Franklin India ELSS Tax Saver Fund

Franklin Templeton has a strong reputation for research-driven investing. This fund has delivered solid 5-year returns of 24.3% with a moderate expense ratio of 1.0%.

The fund follows a diversified approach across sectors and market caps.

Can NRIs Invest in ELSS? What You Need to Know

Yes, NRIs can absolutely invest in ELSS funds. But there are specific requirements.

You need an NRE or NRO account. Mutual funds in India cannot accept foreign currency. All investments must go through rupee-denominated NRE or NRO accounts.

NRE Account: Best if you want repatriable investments. Both principal and returns can be sent back to your country.

NRO Account: Use this for Indian income like rent or dividends. Repatriation is limited to $1 million per year.

Complete your KYC. You'll need:

• Completed KYC form submitted to a SEBI-registered intermediary
• Passport copy (self-attested)
• Overseas address proof
• Recent photograph
• PAN card

Your documents must be attested by authorized officials like Indian Embassy, overseas bank branches, or a Public Notary.

👉 Tip: Many NRIs in UAE already have an NRI account with HDFC, ICICI, or Axis. These banks offer doorstep KYC verification in Dubai and Abu Dhabi.

US and Canada NRIs: Important Restrictions

If you're based in the United States or Canada, you face additional hurdles.

Due to FATCA (Foreign Account Tax Compliance Act), many Indian fund houses don't accept investments from US/Canada residents. The compliance burden is too high for most AMCs.

AMCs that currently accept US/Canada NRIs:

• SBI Mutual Fund
• UTI Mutual Fund
• ICICI Prudential Mutual Fund
• Aditya Birla Sun Life Mutual Fund
• PPFAS Mutual Fund
• Sundaram Mutual Fund
• Tata Mutual Fund
• Nippon India Mutual Fund
• Quant Mutual Fund

Source: Zerodha

Each AMC has different conditions. Some accept only paper applications, others may require additional declarations.

For US NRIs specifically: Indian mutual funds are classified as Passive Foreign Investment Companies (PFICs) under US tax law. This can create complex tax reporting requirements. Consult a cross-border tax expert before investing.

If you're a US or Canada NRI looking for tax-efficient investments without these complications, consider GIFT City mutual funds instead. They're specifically designed for global investors.

What Happens When You Redeem ELSS?

Here's where many NRIs get confused. Yes, you get Section 80C deduction on investment. But redemption is not tax-free.

ELSS redemptions are treated as Long-Term Capital Gains (LTCG) since the lock-in forces you to hold for 3+ years.

Current LTCG tax structure:

• Gains up to ₹1.25 lakh per year: Tax-free
• Gains above ₹1.25 lakh: Taxed at 12.5%

Source: ClearTax

Let's say you invested ₹1.5 lakh in ELSS in 2022. After 3 years, it grew to ₹2.3 lakh. Your gain is ₹80,000, which falls under the ₹1.25 lakh exemption. No tax on redemption.

But if your gain is ₹2 lakh, you pay 12.5% on ₹75,000 (the amount above ₹1.25 lakh), which is ₹9,375.

For NRIs, there's an additional consideration: TDS.

When you redeem ELSS units, if your capital gain exceeds ₹1.25 lakh, the fund house will deduct TDS at 12.5%. You can claim refund of excess TDS by filing your ITR.

👉 Tip: If your country has a Double Taxation Avoidance Agreement (DTAA) with India (like the UAE), you may be able to claim relief on this tax in your country of residence.

SIP vs Lump Sum: Which is Better for ELSS?

Both work. But they serve different purposes.

SIP (Systematic Investment Plan)

With SIP, you invest a fixed amount monthly. Each installment has its own independent 3-year lock-in.

If you start SIP in January 2025:

• January 2025 installment unlocks in January 2028
• February 2025 installment unlocks in February 2028
• And so on…

SIP gives you rupee-cost averaging. You buy more units when markets are low, fewer when markets are high. This reduces timing risk.

Lump Sum

Better if you have surplus funds before March 31 and want to claim the full ₹1.5 lakh deduction in one go. The entire amount has one lock-in date.

My recommendation: Start SIP early in the financial year (April). Don't wait for March to rush into tax-saving decisions. Many NRIs panic-buy the highest-rated fund in March without research. That fund might not be the best performer three years later.

How to Choose the Right ELSS Fund

Don't just pick the highest-return fund. Here's what actually matters:

1. Consistency over peaks

One-year returns are noise. Look at 3-year and 5-year track records. Check rolling returns, not point-to-point returns. A fund that gives 15% consistently is often better than one that swings between 30% and -10%.

2. Fund manager experience

Who's managing your money? How long have they been doing it? Funds like SBI ELSS have fund managers with decades of experience. That matters during market downturns.

3. Expense ratio

Lower expense ratio means more of your money works for you. Quant ELSS has an expense ratio of just 0.5%, while some funds charge over 1%.

4. AUM size

Very small funds (under ₹500 crores) may face liquidity issues. Very large funds may struggle to outperform. The sweet spot is often ₹1,000 to ₹15,000 crores.

5. Investment philosophy

Does the fund's strategy match your risk appetite? Quant takes aggressive bets. HDFC is more conservative. Know what you're buying.

ELSS vs Other Section 80C Options for NRIs

Let's compare ELSS with other tax-saving instruments available (or unavailable) to NRIs:

Source: Income Tax Department and various bank websites

ELSS clearly wins on flexibility and return potential. The only trade-off is market risk.

If you can't handle volatility, consider splitting your 80C limit. Put ₹75,000 in ELSS for growth and ₹75,000 in tax-saving FD for stability.

What About NRIs Planning to Return to India?

If you're considering returning to India, ELSS becomes even more relevant.

Here's why: When you return, your residential status changes from NRI to RNOR (Resident but Not Ordinarily Resident) for up to 3 years, then to Resident.

During RNOR status, you still get favorable tax treatment on foreign income. Your ELSS investments continue. You just need to update your KYC with the fund house showing your new status.

Many NRIs use ELSS as part of their financial planning before return. The 3-year lock-in aligns well with the transition period.

👉 Tip: Use our Compliance Compass to check if you're following all necessary rules across banking, investments, and taxation.

Common Mistakes NRIs Make with ELSS

In our conversations with community members, we see these mistakes repeatedly:

1. Waiting until March

Tax-saving becomes panic-buying. You pick randomly, miss SIP benefits, and often choose based on last year's performance.

2. Not updating residential status

When you become an NRI, you must inform your AMC and link investments to NRE/NRO account. Failing to do this creates compliance issues.

3. Ignoring the new tax regime

Under the new tax regime, Section 80C deductions don't apply. If you've opted for it, ELSS offers zero tax benefit (though you can still invest for equity exposure).

4. Over-diversifying

Having 5-6 ELSS funds doesn't mean more diversification. Most ELSS funds hold similar large-cap stocks. Two funds are usually enough.

5. Redeeming immediately after lock-in

The 3-year lock-in is a minimum, not a target. Equity wealth compounds over time. If your financial goals allow, stay invested for 7-10 years.

Step-by-Step: How to Invest in ELSS from UAE

Here's the practical process:

Step 1: Ensure you have an NRI bank account

If you don't have one, banks like HDFC, ICICI, and Axis offer doorstep account opening in UAE.

Step 2: Complete your KYC

Submit documents to any SEBI-registered intermediary. Many platforms now offer video KYC for NRIs.

Step 3: Choose your fund(s)

Based on the factors we discussed: consistency, expense ratio, fund manager track record.

Step 4: Decide between SIP or lump sum

SIP for regular investing, lump sum for last-minute tax planning.

Step 5: Invest through AMC website or platform

You can invest directly through AMC websites or through aggregator platforms. Direct plans have lower expense ratios than regular plans.

Step 6: Track and review

Don't check daily. Review quarterly. ELSS is meant for 5+ years.

What If ELSS Doesn't Suit Your Situation?

For some NRIs, ELSS may not be the right fit:

• US/Canada residents facing FATCA and PFIC complications
• Those under the new tax regime who won't get 80C benefits
• Risk-averse investors uncomfortable with equity volatility
• Short-term needs (even 3 years can be too long)

In these cases, consider alternatives:

GIFT City investments offer tax-efficient returns without 80C dependency. GIFT City USD FDs give you 5%+ returns in dollars, tax-free, with no currency risk. GIFT City mutual funds provide equity exposure without Indian tax complications for US NRIs.

Our team at Belong specializes in helping NRIs navigate these options. Many UAE NRIs in our community have found GIFT City alternatives that match their specific situation better than traditional ELSS.

Your Next Step

ELSS offers a rare combination for NRIs: tax savings under Section 80C, potential for market-beating returns, and a relatively short 3-year lock-in. For UAE-based NRIs with taxable income in India, it's one of the smartest tax-planning tools available.

But remember: ELSS is just one piece of your financial puzzle. Your overall investment strategy should consider your goals, risk appetite, return timeline, and tax situation across both countries.

Want to discuss which option works best for your specific situation? Join our WhatsApp community where many NRIs share their experiences and get answers to real questions. Or download the Belong app to explore tax-efficient investment options designed specifically for global Indians.

Sources:

• Income Tax Department India
• SEBI
• Scripbox - Best ELSS Funds
• ClearTax - ELSS Mutual Funds
• Groww - ELSS Funds
• Zerodha - NRI Guide