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 choice for tax-saving investments, equity-linked savings schemes (ELSS) are slowly slipping off investors’ radar. More taxpayers are pulling out of the ELSS as they are switching to a new tax regime, which provides no tax benefits under section 80C, according to an ET report.Data for the first quarter of FY26 reveals net outflows of Rs 1,616 crore from ELSS funds, indicating a drying up of fresh inflows and increasing withdrawals from investors whose three-year mandatory lock-in period has ended. Over the past 12 months, ELSS schemes managed a modest net inflow of Rs 535 crore, against the Rs 56,309 crore that poured into the flexicap category during the same period.“Many taxpayers have switched or are switching to the new tax regime, which is now very much attractive,” Gautam Nayak, partner 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 people prefer ELSS earlier?Traditionally, ELSS was favoured for offering a shorter lock-in compared to other tax-saving products like Public Provident Fund (PPF), National Savings Certificates (NSC), and five-year tax-saving fixed deposits. Being equity-oriented, it also offered superior returns. Under the old tax regime, investors could invest up to Rs 1.5 lakh annually in ELSS and claim deductions under Section 80C.But the appeal seems to be fading over time. Since the past year, ELSS has registered the slowest growth among equity funds, with assets under management (AUM) rising just 6.9%, from Rs 2.33 lakh crore to Rs 2.49 lakh crore. In contrast, total equity scheme AUM grew by nearly 22%, from Rs 26.82 lakh crore to Rs 32.69 lakh crore.