Should You Stop ELSS Investments Under the New Tax Regime?

Key Takeaways

Stopping your existing ELSS investments, might be an undesirable step.
ELSS funds can help achieve your financial goals by creating an equity-linked corpus.
If you stop, you might lose out on value, depending on market volality and performance of funds of that time, and it wil have a negative imapct on your planned savings
ELSS funds have a lock-in period, before which you can not liquidate.

18 Mar 2023 by Team FinFIRST

The Union Budget 2023 made the new tax regime all the more attractive for reducing tax liability. However, the new regime doesn’t offer tax deductions under Section 80C for ELSS (Equity Linked Saving Scheme) funds and other investments.

If you consider opting for the new tax regime when filing your taxes, you might be tempted to stop your existing ELSS investments. However, this might be an undesirable step.

Also read: https://www.idfcfirst.bank.in/finfirst-blogs/finance/difference-between-money-finance-funds

Factors to consider when stopping ELSS investments

1. Impact on savings

ELSS funds are equity-oriented mutual fund schemes that have the potential to generate attractive returns on your investment over time. So, your savings will be impacted if you stop investing in these funds. You would lose out on the return potential of these schemes – a loss that is not recommended.

2. Lock-in period

ELSS funds have a lock-in period of 3 years. If you have invested in a lump sum, you must wait 3 years before you can redeem the fund. In the case of SIPs (Systematic Investment Plans), the lock-in period of 3 years applies to each SIP instalment. So, while you can discontinue your SIPs, you cannot liquidate the ELSS folio before the lock-in period ends.

3. Market volatility

The equity market is volatile, and when you want to redeem your ELSS investment, the market might not be conducive to your decision. If the market is falling, you might suffer a loss on redemption.

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4. Investment goals

While ELSS investments offer tax benefits on investment, saving tax is not the only consideration. You may save to create a corpus for your financial goals. Such goals will be impacted if you discontinue investing.

Also read: https://www.idfcfirst.bank.in/finfirst-blogs/savings-account/how-to-set-achievable-financial-goals

5. Tax efficiency

Measure the tax efficiency of your decision to stop ELSS investments. Check your tax liability under the old and new tax regimes and choose where ELSS funds have the lowest tax liability. If the new tax regime is better, you can switch without stopping your ELSS funds. It would allow you to save tax, invest, earn returns, and create a corpus for your goals.

Conclusion

ELSS funds can help achieve your financial goals by creating an equity-linked corpus. So, don’t stop your ELSS investments, whatever tax regime you choose. If you choose the old regime, you can claim Section 80C deductions on ELSS investments and an exemption on long-term capital gains. Besides, if you open an IDFC FIRST Bank Savings Account, you can also claim a deduction on the interest earned under Section 80TTB.

So, understand the laws governing the new tax regime and make the right choice.

Disclaimer

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