ELSS funds: Go-to scheme for tax saving loses traction as new tax regime picks favour; Rs 1,600 crore outflows in Q1 FY26

Once a go-to selection for tax-saving investments, equity-linked financial savings schemes (ELSS) are slowly slipping off traders’ radar. More taxpayers are pulling out of the ELSS as they’re switching to a new tax regime, which offers no tax advantages beneath part 80C, in response to an ET report.Data for the primary quarter of FY26 reveals web outflows of Rs 1,616 crore from ELSS funds, indicating a drying up of contemporary inflows and rising withdrawals from traders whose three-year obligatory lock-in interval has ended. Over the previous 12 months, ELSS schemes managed a modest web influx of Rs 535 crore, in opposition to the Rs 56,309 crore that poured into the flexicap class throughout the identical interval.“Many taxpayers have switched or are switching to the new tax regime, which is now very much attractive,” Gautam Nayak, companion at CNK and Associates was quoted as saying.“Since there are no tax benefits available under Section 80C, these investors would not want to invest in ELSS schemes and lock in their investments for 3 years.”Why did folks desire ELSS earlier?Traditionally, ELSS was favoured for providing a shorter lock-in in comparison with different tax-saving merchandise like Public Provident Fund (PPF), National Savings Certificates (NSC), and five-year tax-saving mounted deposits. Being equity-oriented, it additionally supplied superior returns. Under the outdated tax regime, traders might make investments as much as Rs 1.5 lakh yearly in ELSS and declare deductions beneath Section 80C.But the enchantment appears to be fading over time. Since the previous yr, ELSS has registered the slowest development amongst fairness funds, with property beneath administration (AUM) rising simply 6.9%, from Rs 2.33 lakh crore to Rs 2.49 lakh crore. In distinction, whole fairness scheme AUM grew by almost 22%, from Rs 26.82 lakh crore to Rs 32.69 lakh crore.