Thanks to the new tax regime which has done away with most exemptions and deductions, taxpayers are now redefining the way they tend to invest and save their income tax.
One of the popular investment schemes among retail investors who want to save tax include Equity Linked Savings Scheme (ELSS) which enables investors to stay invested in equity mutual funds for three years while saving income tax at the same time under section 80C up to ₹1.5 lakh.
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But investment in ELSS is not too attractive for the taxpayers anymore since it does not lead to tax saving under the new tax regime.
And the past three-month data suggests that the investors have been redeeming their investment in ELSS.
Redemption in past 3 months
Overall, there are 42 ELSS schemes with total assets under management amounted to ₹2.39 lakh crore as on June 30, 2024. Three months prior to this date, the corresponding figure stood at ₹2.13 lakh crore. So, while the overall assets have risen in the past three months, this category of mutual funds witnessed a reasonable degree of redemption in the June quarter.
In June 2024, equity linked savings schemes amounting to ₹445.37 crore were redeemed. In May and April this year, investors redeemed ELSS units amounting to ₹249.80 crore and ₹144 crore, respectively, thus cumulatively redeeming a total of 839.17 crore in three months.
| Month | Redemption ( ₹crore) |
| June: | 445.37 |
| May: | 249.80 |
| April: | 144 |
(Source: AMFI)
What experts say on the trend
Preeti Zende, a Sebi-registered financial advisor and Founder of Apna Dhan Financial Services, says ELSS schemes are primarily chosen for the purpose of tax saving under section 80C.
She underplays the quantum of redemption in ELSS schemes. She attributes the phenomenon to the bull run in the market. “Investors want to book some profits so many have preferredto come out of ELSS which has completed three years of holding and showing good profits,” she opines.
Ms Zende also explains that investors who wanted to trim the equity portfolio may have exited the ELSS if they were not willing to invest further as a lack of incentive to save tax in the new tax regime.
“However, as far as investment goes, one should not opt for ELSS only to save taxes but to fulfil the financial goals. ELSS is still good for those who want to invest in the equity asset class as well as want to have discipline in investing. As investment done in ELSS cannot be redeemed in 3 years it makes investors stay invested in equity at least for 3 years to make some profits,” explains Ms Zende.
Deepak Gupta, a Delhi-based chartered accountant and founder of Finvestment Pro, says, “Although ELSS comes with three-year lock-in, it is opted for as an investment option because it serves two purposes: tax-saving and investment. With the new tax regime coming into force, taxpayers who were earlier investing in ELSS to save tax will naturally look for other alternatives which are more liquid and give higher returns.”
So, if you want to get disciplined in investment and also want to allocate funds as per asset allocation requirements for your financial goals then ELSS funds are still better.