Mutual Fund Elss: In the financial year 2023-24, about three-fourths of taxpayers filed their income tax return in the new tax system. Finance Minister Nirmala Sitharaman has increased the limit of tax-free income in the new system in the budget 2025 to ₹ 12 lakh (₹ 12.75 lakh for salary taxpayers). It is expected that more people will shift to the new system except the old tax system. However, this may reduce the demand for tax -saving options such as Equity Linked Saving Schemes. But for those who live in the old system, ELSS will still be a good option.
To understand which tax system is right for you, consult a tax expert. If the old system is right for you, then plan your tax savings.
1 Finance Senior Vice-Pressurer Rajani Tandale said, “Check the Employees Provident Fund (EPF) Contribution, Insurance Premium and the rest of the deeds. Invest in ELSS only when the limit of ₹ 1.5 lakh of Section 80C is not being completed. ”
ELSS: low lock-in and better returns
ELSS (Equity Linked Saving Scheme) offers the smallest lock-in period in tax saving products. Tandale said, “ELSS only has a lock-in of 3 years, while 5 years for tax saving fixed deposits and 15 years in public provident fund (PPF) have a 15-year lock-in period.”
ELSS has performed better than fixed income options in a long time. Moneyfront co-founder and CEO Mohit Gang said, “ELSS returns are usually 10 to 15 percent annually.”
Lock-in period helps investors to maintain investment even in difficult times. Abhishek Tiwari, executive director of PGIM India Mutual Fund, said, “Investors benefit in a long time by staying in Volatil Market.”
SIP average cost
Investing through SIP (Systematic Investment Plan) averages the cost of investment. Raghavendra Nath, managing director of ladder-up wealth management, said, “The portfolio of the diversified stocks in the sectors and different market cap reduces the risk of individual stocks.”
Impact of market fluctuations
Investors may have to face market fluctuations due to excess exposure to equity in ELSS (Equity Linked Saving Scheme). Nath says, “Equity investment can lead to major ups and downs in the value of investment in short term. Even negative returns can be found when market down. ”
The volatility level of the fund depends on its composition. “Some funds have more exposure to midcap and smallcap stocks, which may be highly voltill,” says Tandale.
Investors who do SIP should take care that they cannot find out their entire investment before three years. “Every SIP installment is trapped in a three-year lock-in period, which many investors ignore,” says Tandale.
Should you invest in ELSS?
Invest the same people in ELSS who have the capacity to withstand the market voliticity. Nath says, “ELSS can be an attractive option for those whose risk tolerance is high from medium.”
ELSS will reduce demand in new tax system
ELSS will not remain as attractive for investors adopting new tax systems. According to the gang, “Other equity mutual funds in the new tax system will be better options as they offer more flexibility.” Even in the old tax system, people who do not want to take much risk should stay away from ELSS.
ELSS: Learn important things before investing
Investing in ELSS is required at least seven years long term commitment. Those who are going to the new tax system from the old tax system this year should stop their SIP contribution. Investors are allowed to get out of it after ELSS’s lock-in period is over. If the fund performance is good then maintain investment, but if the fund is not giving returns as expected, then consider exit. It should be done slowly to reduce the tax effect when making redemption (investing).
