New Tax Regime: Is ELSS still relevant without Section 80C tax breaks?

Over the past few years, the government has made the New Tax Regime far more attractive. As a result, many taxpayers have shifted from the Old Tax Regime to the new one. In doing so, they have had to forgo several tax deductions that were earlier available. One such deduction was for investments in Equity Linked Savings Schemes (ELSS).

This raises an important question: is ELSS still relevant without tax deductions under the New Tax Regime, and should investors continue to invest in it?

What is ELSS?

Equity Linked Savings Schemes (ELSS) are mutual fund schemes that invest at least 80% of their assets in equities and equity-related instruments. These schemes come with a 3-year lock-in period. Under the Old Tax Regime, ELSS investments were eligible for tax deductions under Section 80C of the Income Tax Act, subject to a maximum limit of ₹1.5 lakh per financial year.

When investing through the Systematic Investment Plan (SIP) route, each instalment has a lock-in period of three years from the date of investment. ELSS is a suitable product for long-term wealth creation and for meeting financial goals.

Is ELSS still relevant under the New Tax Regime?

While ELSS continues to offer tax benefits under the Old Tax Regime, no such deduction is available under the New Tax Regime. As a result, some investors who have switched regimes have either stopped investing in ELSS or are reconsidering their investments.

To address this, it is useful to examine how ELSS has performed historically, both on its own and in comparison with other equity fund categories. ELSS funds are broadly comparable with flexi-cap, multi-cap and large-cap funds, as most ELSS schemes invest across market capitalisations, with a larger allocation to large-cap stocks.

The above returns are as of 9 January 2026. The returns are on a compounded annual growth rate (CAGR) basis.

On a standalone basis, ELSS funds have delivered returns of 14–16% CAGR over the last three to ten years. These are strong returns that have helped investors create wealth.

When compared with other equity categories, ELSS has outperformed flexi-cap and large-cap funds over both five- and ten-year periods. Multi-cap funds have delivered slightly higher returns, but overall, all four categories have generated healthy returns, with ELSS emerging as the second-best performer.

From a returns perspective, it therefore makes sense for existing investors to continue investing in ELSS.

ELSS can help you become a disciplined investor

Wealth creation through equities requires regular, long-term investing to benefit from compounding. However, many investors are driven by emotions, primarily greed and fear.

Equity markets can be volatile in the short term. During sharp market corrections, fear often leads investors to panic and redeem their investments at a loss. They then remain on the sidelines even after markets recover, missing out on wealth creation.

Conversely, during sharp market rallies, greed can take over. Investors may book profits in an attempt to time the market, hoping to re-enter at lower levels. If markets continue to rise, they risk missing further gains.

ELSS helps address both these behavioural pitfalls through its three-year lock-in period. During this time, investors cannot redeem their investments, regardless of short-term market movements. This prevents panic selling during downturns and profit-booking during rallies.

For SIP investors, each instalment carries its own three-year lock-in. This structure forces investors to stay invested through market cycles and gradually builds the habit of disciplined, long-term investing.

Over time, ELSS can help investors overcome emotional decision-making and stay focused on long-term wealth creation.

Should you continue investing in ELSS?

The short answer is yes.

Regular, long-term investing is essential to benefit from compounding and create wealth. While investors under the New Tax Regime cannot claim Section 80C deductions, tax benefits should be seen as an enabler, not the sole reason, for investing in ELSS.

Even without tax deductions, ELSS offers several advantages. Most importantly, the category has delivered strong returns in the past. These returns, independent of tax benefits, can help investors meet their financial goals and work towards financial freedom.

That said, past performance does not guarantee future returns.

• Gopal Gidwani is a freelance personal finance content writer with 15+ years of experience. He can be reached on LinkedIn.