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Once a go-to investment for tax savers, Equity Linked Savings Schemes (ELSS) are facing an identity crisis. With the new tax regime sidelining Section 80C deductions, ELSS no longer offers

the same incentives. As investors seek flexibility and goal-based strategies, is the once-popular product slowly losing relevance in modern portfolios?

According to data from the Association of Mutual Funds in India (AMFI), ELSS experienced a net outflow of ₹372 crore in April 2025.

While recent AMFI data indicates some withdrawals from ELSS funds, there could be more to it as investors usually invest during the January-March quarter. Once the 3-year period finishes,

some percentage of these investors redeem their investments, usually in April-May.

The new tax regime, which is gaining popularity, does not offer tax deductions for investments in ELSS, making it less attractive for tax-saving purposes and hence, incremental flows would

have been impacted. "We also see ELSS flows are seasonal and usually April flows are muted in most financial years," said Vaibhav Shah, head– products, business strategy & international

business, Mirae Asset Investment Managers (India).

Experts believe that the relevance of ELSS has certainly been redefined in the context of the new income tax regime that does not allow deductions under Section 80C.

Historically, ELSS attracted investors primarily due to the tax benefits it offered. With this advantage no longer applicable (under the new tax regime), the incentive to remain locked in

for three years no longer exists. Investors today are becoming more goal-focused and prefer flexibility in their investment choices.

Open-ended equity funds offer the flexibility to realign portfolios as life goals evolve, or financial circumstances change. This adaptability is crucial in a goal-based investment approach,

where periodic review and rebalancing are key to staying on track. ELSS, with its lock-in period, limits this flexibility and may not align well with changing priorities over time.

Harsh Gahlaut, co-founder & CEO, FinEdge, said, "We believe that the ability to make timely portfolio adjustments, whether due to life stage transitions, goal adjustments or market dynamics,

is better achieved through open-ended equity funds. In today’s environment, where personalisation and agility matter more than ever, flexibility must take precedence over legacy tax-saving

options."

Open-ended equity mutual funds, with no lock-in and a wide variety of categories to choose from (such as large-cap, flexi-cap, or sectoral funds), offer greater freedom to align portfolios

with specific goals, risk appetites, and investing horizon. However, Gahlaut said, "Investing in ELSS should not be driven solely by the objective of tax-saving. ELSS investments should be

thoughtfully aligned to a specific future goal that an investor wants to achieve. While ELSS can help investors build a long-term equity exposure, its true value lies in how meaningfully it

integrates into an investor’s personalised, goal-based investment roadmap."

Shah says, "ELSS still holds value even without the 80C tax benefits. One of its core strengths is the three-year lock-in period, which fosters disciplined investing and helps investors stay

the course during market volatility. Often, premature withdrawals driven by short-term market movements may harm long-term wealth creation. In that sense, the lock-in period acts as a

behavioural advantage, preventing impulsive decisions."

"At Mirae Asset, our ELSS fund is one of the best-performing funds as well, highlighting the impact it can make in long-term wealth generation. We have also seen many investors investing

more than Rs 1.5 lakh (above the maximum tax benefit amount), because they like the concept of holding for the long term, and invest in a fund that has a good track record. It can still

create strong long-term wealth. Also, the 3-year time frame allows the fund manager more flexibility in managing the fund and generates better alpha," he added.