Old Tax Regime: When Should You Opt For It? Check Top Three Tax-Saving Mutual Funds For 2026

"In this world, nothing can be said to be certain, except death and taxes," Benjamin Franklin once famously said.

While we all work hard to make a living, tax saving is an integral part of the wealth creation journey. A penny legitimately saved from tax is a penny earned.

At present, individual assessees have the option to choose between the Old Tax Regime (OTR) and the New Tax Regime (NTR) when filing their income-tax returns.

It is important that you make a prudent choice, depending on which tax regime suits you the best. And if you do not make this choice, automatically you will be taxed under the NTR (since it is the default tax regime).

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Here are the income-tax slab rates under NTR and OTR:

*For individuals below 60 years

In case you are a senior citizen between 60 years and 80 years, the basic exemption limit under the OTR is Rs 3 lakhs, and if you are a super senior citizen, the basic exemption limit is Rs 5 lakh. Over and above the basic exemption limits, both these regimes offer you a rebate under Section 87A of the Income Tax Act, 1961.

This rebate is applied to the total tax before health & education cess and is available to individuals within the 10% tax slab, and is as follows under the NTR and OTR.

The rebate makes your tax liability nil if your income is up to Rs 12 lakh under the NTR and Rs 5 lakh under the OTR.

While the NTR outwardly seems attractive, it should be noted that many exemptions and deductions, which are otherwise available under the OTR, are not available under the NTR.

Only the following deductions and exemptions are allowed under the NTR:

- Standard deduction up to Rs 75,000 per annum (for salaried individuals)

- Deduction for employer's contribution to NPS under Section 80CCD(2)

- Contribution to Agniveer Corpus Fund under Section 80CCCH

- Transport allowance for a person with disability

- Conveyance allowance for job-related travel

- Daily allowance for duty-related expenses

- Perquisites for official purposes

- Leave Encashment under Section 10(10AA)

- Exemption for voluntary retirement under Section 10(10C)

- Gratuity under Section 10(10D)

- Family pension up to Rs 25,000

- Gifts up to Rs 50,000

- Interest on home loan on let-out property (LOP), under Section 24(b)

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The NTR does not allow important deductions such as the following, among others...

- For interest on home loan in case of a self-occupied property under Section 24(b)

- Deduction under Section 80C for home loan principal repayment

- HRA claimed, in case you are living on rent

- Health insurance premium paid under Section 80D

- For employees' contribution to NPS under Section 80CCD

- For investments in PPF

- Donations made under Section 80G

- Interest on education loan under Section 80E

- Deduction under Section 80TTA and 80TTB for interest earned on savings account and deposits, respectively

- Children's education allowance

- Minor child's income allowance

- Other special allowances under Section 10(14)

The above deductions and exemptions are available under the OTR.

So, although the NTR may look appealing at first glance, in reality, it may not be so.

If you are in the higher income tax bracket, repaying a home loan, living on (claiming HRA), paying health and life insurance premiums for yourself and dependent family members, paying your child's school or tuition fees or interest on an education loan, by claiming important deductions and exemptions, you can materially reduce your tax liability.

Broadly, for anyone whose annual income is over Rs 20-25 lakh, making sizeable tax saving investments, and/or claiming these deductions, the OTR is beneficial.

If you are choosing the OTR and considering making tax-saving investments, tax-saving mutual funds (also known as Equity Linked Saving Schemes or ELSS) are a worthwhile option. ELSS can help you get two birds in one stone: save tax and potentially multiply wealth over a period of time.

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What is ELSS?

ELSS (Tax Saving Mutual Funds) are equity-oriented mutual funds that have a mandate to invest a minimum of 80% of their total assets in equity and equity-related instruments in accordance with the Equity-Linked Savings Scheme 2005, as notified by the Ministry of Finance.

Moreover, they come with a mandatory lock-in period of 3 years, instilling the discipline of staying invested for the long-term with the objective of wealth creation. This lock-in is the least among all the other tax-saving avenues.

Most ELSS or tax-saving mutual funds hold the mandate to invest flexibly across market capitalisation and sectors. And as regards investment style, it may follow growth or value style, or a blend of the two.

The investment made in an ELSS in a financial year entitles you to a deduction of up to Rs 1.50 lakh.

Who Should Consider ELSS?

If you are a risk-taker and do not mind market-linked returns, ELSS or tax-saving mutual funds are a suitable option for you. The returns you make would be potentially higher than some of the traditional tax avenues, albeit with higher risk.

That said, it is necessary that you choose an ELSS carefully. Other than the historical returns clocked, also take a close look at the risk taken to clock returns and the portfolio characteristics - to understand the investment style, top holdings, portfolio concentration and quality among other factors.
 

Which are the top 3 tax-saver funds or ELSS for 2026?

#1: Motilal Oswal ELSS Tax Saver Fund

This fund was launched in January 2015 and today has over a more than decade-long track record. It is among the popular tax-saver funds managing assets over Rs 4,341 crore as per the December 2025 portfolio.

At present, the fund is holding 97% of its total assets in domestic equities and the remaining 3% in cash & cash equivalents.

The fund holds a compact portfolio of 30-35 stocks. As per its latest portfolio, the fund has 30 stocks, of which 16% are largecaps, 51% midcaps, and 33% smalllcaps. In other words, the portfolios is skewed towards mid and small caps.

The top 10 stocks comprise of 45.3% of the total portfolio, and include names such as MCX (6.6%), Enteral (5.1%), Piramal Finance (4.9%), etc.

The top 3 sectors of the fund are financials (28.8%), industrials (17.1%), and consumer discretionary (13.6%), comprising 59.5% of the total portfolio.

The overall PE and PB of the portfolio of this fund are 47.9 and 5.2, respectively, signifying the fund pursues a growth style of investing.

The fund holds its portfolio with conviction, but at times does not hesitate to churn. This reflects in the portfolio turnover ratio of 56%.

The strategy followed by the fund has yielded appealing returns (as of 16 January 2026, under the direct plan):

Since inception = 17.3% CAGR, outperformed the benchmark Nifty 500 - TRI

3 years = 24.2% CAGR

5 years = 20.3%

The fund, however, is a high-risk but has well-compensated investors on a risk-adjusted basis over the last 3 years (as of 16 January 2026):

Standard Deviation (a measure of total volatility of the fund) = 19.0%, higher than the category average of 13.0% and the benchmark index.

Sharpe Ratio (a measure of risk-adjusted return, showing if the fund has justified risk for each unit of risk taken) = 0.91, higher than the category average of 0.88.

#2: SBI ELSS Tax Saver Fund

This scheme was launched as SBI Magnum Taxgain Scheme -1993, in March 1993. Thereafter, in February 2020, it was renamed as SBI Long Term Equity Fund, and last year, in April 2025, as SBI ELSS Tax Saver Fund to make it identifiable as an ELSS or tax saver fund.

It's one of the oldest tax-saving mutual funds in India, with over 3 decades of track record. It is managing asset over Rs 32,608 crore, the second highest in the category.

Currently, the fund is holding 92% of its total assets in domestic equities and the remaining 8% in cash & cash equivalents and treasury bills.

SBI Long Term Equity Fund usually holds around 60-70 stocks in its portfolio. At present, it has 70 stocks in its portfolio as of December 2025. 63% are largecaps, 21% midcaps, and 16% smallcaps. In other words, it is holding a largecap biased portfolio.

The fund follows a value-conscious investment approach and a combination of top-down and bottom-up approaches.

The top 10 stocks comprise of 36.9% of the total portfolio, and include names such as HDFC Bank (8.7%), Reliance Industries (5.4%), Tata Steel (3.4%), etc.

Financials (29.4%), energy & utilities (13.3%), and technology (12.1%) are the top 3 sectors, comprising 54.8% of the total portfolio.

Overall, the fund follows a 'buy-and-hold' investment strategy, as reflected by a low portfolio turnover ratio of 12%.

The returns generated by the fund have been quite attractive (as of 16 January 2026, under the direct plan):

Since inception = 16.2% CAGR, outperforming the benchmark BSE 500 - TRI

3 years = 23.9% CAGR

5 years = 20.9%

The fund has exposed its investors to lower risk than the category average but is an above-average performer on a risk-adjusted basis.

Standard Deviation = 12.8%, lower than the category average of 13.0% and the benchmark index.

Sharpe Ratio = 1.33, higher than the category average of 0.88.

#3: HDFC ELSS Tax Saver Fund

This fund is also one of the oldest funds in the category, launched in March 1996 as the HDFC Tax Saver Fund. To bring in uniformity in the nomenclature with other funds in its category, the fund's name was changed to HDFC ELSS Tax Saver.

It has a track record of 29 years and is currently managing AUM of over Rs 17,163 crore as of December 2025.

It is holding 98% of its total assets in domestic equities, and the remaining 2% in government securities, rights, and cash & cash equivalents.

Usually, it holds 40-55 stocks in its portfolio. At present, it has 55 stocks, 84% are largecaps, 6% midcaps, and 9% smallcaps.

The top 10 stocks comprise of 56.3% of the total portfolio, and include names such as HDFC Bank (9.6%), Axis Bank (8.9%), ICICI Bank (8.6%), etc.

Financials (43.7%), consumer discretionary (17.1%), and technology (12.1%) are the top 3 sectors, comprising 72.9% of the total portfolio.

The fund invests following a blend of growth and value styles, identifying stocks with attractive valuations.

It holds the portfolio with conviction and avoids churning, as reflected by the low portfolio turnover ratio of around 12%

The strategy followed by the fund has yielded an attractive return (as of 16 January 2026, under the direct plan):

Since inception = 15.2% CAGR, outperformed the benchmark Nifty 500 - TRI

3 years = 21.7% CAGR

5 years = 21.1%

On a risk-adjusted basis, it also looks appealing:

Standard Deviation = 10.9%, lower than the category average of 13.0% and the benchmark index.

Sharpe Ratio = 1.33, higher than the category average of 0.88.

To conclude

Make a thoughtful choice between the OTR and NTR so that it can help you save tax.

To make tax-saving investments, ELSS or tax-saver mutual funds are a potent avenue for long-term wealth creation if you select the schemes thoughtfully instead of making an ad hoc choice.

Invest sensibly in tax-efficient avenues.

Happy investing!

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