Best ELSS Mutual Funds: HDFC vs. Motilal Oswal for Tax Savings in 2025

The introduction of the new tax regime in recently announced Union Budget for FY 2025-26 marked a pivotal shift in India's taxation system. While the new regime brings lower tax rates, it also eliminates numerous exemptions and deductions that taxpayers had relied upon in the past. The shift towards a simpler, lower-rate structure has left many taxpayers questioning the best approach to tax-saving in the absence of various deductions.

With the simplification of tax slabs and the reduction of deductions and exemptions, Section 80C-under which Equity-Linked Savings Schemes (ELSS) once provided tax relief has been rendered ineffective for those opting for the new tax regime. This has left investors with limited avenues for claiming tax benefits from their investments.

[Read: Union Budget 2025: Is the New Tax Regime Really Beneficial for You]

You might be wondering if ELSS investments are still a worthwhile option. Well, let me offer you a fresh take on why they are far from losing their charm.

Unlike other tax-saving options, ELSS stands out as the best choice due to its relatively short lock-in period of just three years, offering both tax benefits and the potential for significant wealth creation. Whether you opt for the old or new tax regime, investing in ELSS allows you to navigate the current market uncertainties while remaining on the tax-saving track.

Additionally, in case you decide to switch back to the old tax regime in the future, your investment in ELSS will still offer the advantage of tax deductions under Section 80C, making it a flexible and powerful tool for long-term financial planning.

The budgetary reforms, including a tax-free income threshold of up to Rs 12 lakh and the reduction in tax slabs, present taxpayers with a new landscape to optimize their financial strategies. Given the prevailing market uncertainties, it is vital to consider how ELSS funds, which have historically provided competitive returns, can be an integral part of one's portfolio.

With factors such as geopolitical tensions, inflation concerns, and fluctuating global market conditions creating volatility, selecting the right ELSS fund has never been more crucial.

[Read: How to Select the Best Suitable Tax-saving Option for You]

This article highlights two of the best-performing ELSS funds, carefully selected to guide you in making an informed choice amidst the current market uncertainties.

# - HDFC ELSS Tax Saver Fund

HDFC ELSS Tax Saver Fund, an open-ended equity scheme is a well-established tax-saving option launched in March 1996, it holds an AUM of Rs 15,728.87 crore as of December 31, 2024. It aims to generate long-term capital growth through a diversified portfolio of equity and equity-related securities across all market capitalizations, employing a flexible investment approach that spans large-cap, mid-cap, and small-cap companies.

# - Motilal Oswal ELSS Tax Saver Fund

Motilal Oswal ELSS Tax Saver Fund, a tax-saving scheme from Motilal Oswal Mutual Fund was launched in January 2015 and currently holds an AUM of Rs 4,414.88 crore. It adopts a balanced approach, diversifying across sectors and market capitalizations to reduce concentration risks and enhance resilience during market fluctuations. With a mandatory 3-year lock-in period, the fund is well-suited for long-term investors.

Investment Style and Philosophy:

HDFC ELSS Tax Saver Fund: follows a growth-oriented investment style, primarily focusing on investing in large-cap and small-cap stocks with strong growth potential. The fund manager adopts a bottom-up approach to stock selection, analyzing individual companies based on their financials, growth prospects, and management quality.

Motilal Oswal ELSS Tax Saver Fund: adopts a slightly different investment approach, blending a mix of large-cap, small-cap stocks with a strong emphasis on mid cap stocks. The fund managers focus on identifying high-quality stocks that are trading at attractive valuations, with a keen eye on the long-term prospects of the businesses. The portfolio tends to be more concentrated, with a preference for fewer, high-conviction picks rather than broad diversification.

• Performance Comparison: Scheme Returns

  Scheme Name	Absolute (%)	CAGR (%)
  	1 Year	3 Years	5 Years	7 Years
  HDFC ELSS Tax Saver Fund	41.04	25.01	21.11	15.03
  Motilal Oswal ELSS Tax Saver Fund	55.90	25.89	24.24	18.17
  ELSS - Category Average	35.14	19.06	19.91	13.28
  Benchmark - Nifty 500 TRI	33.49	17.82	19.67	15.07

  Data as of December 31, 2024
  Do note past performance is not an indicator of future returns
  The securities quoted are for illustration only and are not recommendatory.
  (Source: ACE MF, data collated by PersonalFN Research)  

  Both the HDFC ELSS Tax Saver Fund and Motilal Oswal ELSS Tax Saver Fund have showcased impressive market performance, consistently surpassing the ELSS category average and their benchmark index, Nifty 500 TRI, across multiple time horizons.

  The Motilal Oswal ELSS Tax Saver Fund has outperformed the HDFC ELSS Tax Saver Fund over multiple periods. Over a 3-year period, both funds performed at par with Motilal Oswal returning 25.89% CAGR and HDFC at 25.01% CAGR, both significantly outperformed the ELSS category average of 19.06%. However, Motilal Oswal maintained an edge in the longer term with 24.24% CAGR over 5 years and 18.17% CAGR over 7 years, which also outperformed HDFC's returns of 21.11% and 15.03% over the same periods.

  Motilal Oswal's consistently superior returns across different time periods suggest a more aggressive or successful investment approach. However, both funds have demonstrated strong growth, with HDFC still performing better than the average ELSS category, making both worthy considerations for long-term tax-saving investment.

• Portfolio Composition: Asset Allocation of Schemes

  Scheme Name	Large Cap %	Mid Cap %	Small Cap %
  HDFC ELSS Tax Saver Fund	73.10	6.69	10.83
  Motilal Oswal ELSS Tax Saver Fund	27.54	43.51	27.89

  Data as of December 31, 2024
  Do note past performance is not an indicator of future returns
  The securities quoted are for illustration only and are not recommendatory.
  (Source: ACE MF, data collated by PersonalFN Research)  

  HDFC ELSS Tax Saver Fund has a predominantly large-cap-focused portfolio, with 73.10% allocation to large-cap stocks, making it a relatively stable option for investors seeking tax savings with lower volatility. The fund has 6.69% exposure to mid-cap stocks and 10.83% in small caps, providing some growth potential from emerging companies while maintaining a solid base in established large-cap firms. This asset allocation suggests a more conservative approach, focusing on blue-chip companies that tend to be less volatile and generate steady returns over time.

  On the other hand, Motilal Oswal ELSS Tax Saver Fund follows a more aggressive investment strategy, with a lower large-cap allocation of just 27.54% and significantly higher exposure to mid and small-cap stocks at 43.51% and 27.89%, respectively. This indicates a growth-oriented approach, where the fund is betting on high-growth potential companies in the mid and small-cap space. While this can lead to higher returns in a bullish market, it also comes with increased risk and volatility.

  Investors with a higher risk appetite and a long-term horizon may find Motilal Oswal ELSS more appealing, whereas those seeking stability alongside tax benefits may prefer HDFC ELSS Tax Saver Fund.

  [Read: 4 Best ELSS for 2024 - Top Performing Tax Saving Mutual Funds in India]

• Market volatility: Risk Profile of Schemes

  Risk Ratio	HDFC ELSS Tax Saver Fund	Motilal Oswal ELSS Tax Saver Fund
  Standard Deviation (3 Year)	13.45	18.47
  Sharpe	0.30	0.26
  Sortino	0.66	0.46

  Data as of December 31, 2024
  Do note past performance is not an indicator of future returns
  The securities quoted are for illustration only and are not recommendatory.
  (Source: ACE MF, data collated by PersonalFN Research)  

  Motilal Oswal ELSS Tax Saver Fund has a higher standard deviation of 18.47, indicating greater volatility and risk compared to the HDFC ELSS Tax Saver Fund, which has a lower standard deviation of 13.45. This makes the HDFC ELSS suitable for investors with a higher risk appetite, offering potential for larger fluctuations in returns.

  Additionally, while both funds have positive Sharpe ratios, HDFC ELSS (0.30) slightly outperforms Motilal Oswal ELSS (0.26), indicating that HDFC ELSS has delivered better risk-adjusted returns for each unit of volatility. The Sortino ratio is also higher for HDFC ELSS (0.66 vs. 0.46 for Motilal Oswal ELSS), suggesting that HDFC ELSS has managed downside volatility better.

• Top Holdings of the Schemes:

  HDFC ELSS Tax Saver Fund		Motilal Oswal ELSS Tax Saver Fund
  Company	% Assets	Company	% Assets
  HDFC Bank Ltd.	9.92	Trent Ltd.	6.86
  ICICI Bank Ltd.	9.78	Zomato Ltd.	6.25
  Axis Bank Ltd.	7.85	Kalyan Jewellers India Ltd.	5.44
  Cipla Ltd.	5.25	Kaynes Technology India Ltd.	5.00
  Bharti Airtel Ltd.	5.05	Prestige Estates Projects Ltd.	4.05
  HCL Technologies Ltd.	4.08	Amber Enterprises India Ltd.	3.93
  SBI Life Insurance Company Ltd.	3.98	Premier Energies Ltd.	3.89
  Kotak Mahindra Bank Ltd.	3.97	Gujarat Fluorochemicals Ltd.	3.86
  Maruti Suzuki India Ltd.	3.80	Coforge Ltd.	3.68
  State Bank Of India	2.27	Apar Industries Ltd.	3.47

  Data as of December 31, 2024
  Do note past performance is not an indicator of future returns
  The securities quoted are for illustration only and are not recommendatory.
  (Source: ACE MF, data collated by PersonalFN Research)  

  HDFC ELSS Tax Saver Fund primarily focuses on large-cap banking and financial stocks, with HDFC Bank (9.92%), ICICI Bank (9.78%), and Axis Bank (7.85%) making up a significant portion of its portfolio. This indicates a strong preference for the banking sector, which is a key driver of India's economic growth. Additionally, the fund has exposure to pharmaceuticals through Cipla (5.25%) and telecom with Bharti Airtel (5.05%), ensuring a well-diversified approach across defensive and growth sectors.

  On the other hand, Motilal Oswal ELSS Tax Saver Fund has a more diversified sectoral allocation, leaning towards consumer, technology, and infrastructure-related stocks. Its top holdings include Trent Ltd. (6.86%), Zomato Ltd. (6.25%), and Kalyan Jewellers (5.44%), indicating a strong focus on consumer-driven businesses. This suggests a strategy favouring mid-cap growth companies with high potential rather than a traditional large-cap banking-heavy approach.

• Expense Ratio of the Schemes

  Scheme Name	Direct Plan Expense Ratio	Regular Plan Expense Ratio
  HDFC ELSS Tax Saver Fund	1.11%	1.70%
  Motilal Oswal ELSS Tax Saver Fund	0.64%	1.82%

  Data as of December 31, 2024
  Do note past performance is not an indicator of future returns
  The securities quoted are for illustration only and are not recommendatory.
  (Source: ACE MF, data collated by PersonalFN Research)  

  While the difference between the two funds' expense ratios is minimal under the regular plan, even a small percentage point difference can accumulate over time and impact your returns. However, under the direct plan, the Motilal Oswal ELSS Tax Saver Fund offers a lower expense ratio and attracts investors, being a cost-effective option for investors.

  Remember, a lower expense ratio translates to potentially higher returns over time, but a lower Expense Ratio should not be the only factor to be considered while investing in ELSS.

  [Read: How to Select the Best ELSS for Tax-saving in 2024]

• Suitability of Investors to the Schemes:

  HDFC ELSS Tax Saver Fund is suitable for investors looking for a stable, long-term growth-oriented ELSS fund with relatively lower volatility. In contrast, the Motilal Oswal ELSS Tax Saver Fund caters to aggressive investors willing to take higher risks for potentially higher returns. Both funds are long-term investment options, but the choice depends on whether tax saving or aggressive equity exposure is the priority.

  However, investors should be prepared for short-term market fluctuations, as the fund's performance is tied to overall market conditions. Ultimately, a thorough evaluation of your risk appetite, investment horizon, and portfolio needs will guide you towards the ELSS that best aligns with your tax-saving goals.

Note:  In my previous ELSS/tax-saving mutual fund comparison reports, I have covered a comprehensive analysis of the Best ELSS Mutual Funds; you may consider reading -

SBI vs Quant ELSS: Which Best Tax Saving Fund to Add in Your Portfolio for 2025?

Pick the Best Tax Saving Mutual Funds: BOI vs JM ELSS Tax Saver Fund

Parag Parikh ELSS Tax Saver Fund vs Kotak ELSS Tax Saver Fund: Pick Your Tax-Saving Option

Best ELSS Mutual Funds: DSP ELSS Tax Saver Fund vs Nippon India ELSS Tax Saver Fund

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MITALI DHOKE is a Research Analyst at PersonalFN. She is an MBA (Finance) and a post-graduate in commerce (M. Com). She focuses primarily on covering articles around mutual funds including NFOs, financial planning and fixed-income products. Mitali holds an overall experience of 4 years in the financial services industry.
She also actively contributes towards content creation for PersonalFN’s social media platforms in the endeavour to educate investors and enhance their financial knowledge.
 

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.