New tax regime vs ELSS: Should you still invest in tax-saving funds?

If you’ve shifted to the new income tax regime, you may be wondering whether ELSS (Equity-Linked Savings Scheme) funds still make sense — especially since they no longer offer tax deductions under Section 80C.

 

Under the old tax regime, these funds qualified for a deduction of up to Rs 1.5 lakh under Section 80C. They also come with a three-year lock-in period.

 

The short answer: ELSS returns haven’t been hurt by the new tax regime — but the reason to invest in them may have changed.

 

ELSS performance hasn’t declined

 

Value Research compared ELSS funds with flexi-cap funds and the broader market shows that the category continues to hold up well over the long term.

 

 

Between January 2018 and February 2026, ELSS funds delivered average five-year rolling returns of about 15.3%, roughly in line with flexi-cap funds and ahead of the Nifty 500 TRI (14.8%).

 

ELSS funds also:

 

Outperformed flexi-cap funds in over half of five-year periods

 

Beat the benchmark in nearly two-thirds of periods

 

This shows that tax changes don’t directly affect mutual fund returns — performance depends on markets and fund management decisions, not taxation rules.

 

"The above data proves that ELSS funds have been on a strong footing. While they delivered nearly identical returns to flexi-cap funds, they also beat their benchmark by a decent margin. What’s more, the category outperformed flexi caps in marginally more than half of all five-year periods and the Nifty 500 TRI in nearly two-thirds of such periods," said Ameya Satyawadi of Value Research in a note. 

 

What has changed is the investment motivation.

 

Under the old tax regime:

 

ELSS offered Section 80C deduction up to ₹1.5 lakh

 

Investors used them primarily for tax saving + equity exposure

 

Under the new regime:

 

Tax deductions don’t apply

 

ELSS becomes just another diversified equity fund with a 3-year lock-in

 

That lock-in can matter for investors who want flexibility.

 

When ELSS still makes sense

 

ELSS may still work for you if:

 

• You are continuing in the old tax regime
• You want disciplined long-term equity investing
• You are comfortable with the three-year lock-in period

 

Because fundamentally, ELSS remains an equity mutual fund category with strong long-term returns.

 

When you may skip ELSS

 

If you are in the new tax regime, you might prefer:

 

• Flexi-cap funds
• Large-cap or index funds
• Other diversified equity funds without lock-in

 

These can offer similar market exposure with greater liquidity.

 

"So, should investors under the new tax regime still consider ELSS funds? Though the category has been on par with flexi-cap funds, it comes with a lock-in period, something that may not suit investors seeking liquidity. However, if you have opted for the old regime and are comfortable with the three-year lock-in period, ELSS funds still hold merit," noted Value Research. 

 

The takeaway for investors

 

The new tax regime hasn’t reduced ELSS performance — but it has reduced the tax incentive to invest in them.

 

For most investors today, the decision is simple:

 

Old regime → ELSS can still be useful

 

New regime → choose equity funds based on goals, not tax benefits

 

Think of ELSS now as an investment choice, not a tax-saving compulsion.