What should I do with ELSS MFs after switching to the new tax regime?

Published on / By M. Pattabiraman Twitter: @pattufreefincal

Published: October 25, 2025 at 6:00 am

A reader says, “I have been reading Subramoney and Freefincal for a few years. My father thought the stock market was like a lottery and never invested in it. After a few missed opportunities and very low savings at age 30 (<1x my annual expenses), I got my first decent job and realized I had zero equity exposure, I started investing in tax saver mutual funds (HDFC, SBI and Canara) from 2012. I invest directly from the fund website. I invest monthly but don’t do an SIP. I have never missed a month”.

“I switched to the new tax regime as it meant paying lower taxes. I added ICICI value discovery in 2022 and hybrid funds from Canara and HDFC in 2023. I realize that my MF selection is random. My equity investment every month is 30% of my monthly salary.
I am 45 now, my net worth is 15x my annual expenses and equity (only MF) is 52% of my net worth”.

“Should I stop tax saver funds and move to index funds or some other category of mutual funds? I have not made any withdrawals from mutual funds and don’t expect to do so for another 15 years unless for portfolio balancing. Thank you”

Disciplined investing is far more critical than fund selection. Thanks to systematic investing, you have built yourself a decent portfolio. Congratulations.

Switching to the new tax regime is smart, not just because of lower taxes, but because there is no compulsion to invest in specific products that lock in our money only to save tax.  Interested readers may consult our New Tax Regime vs Old Tax Regime Calculator.

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Many feel that the new tax regime will not “force” people to “save”. I beg to differ. Wanting to save or invest should be inherent in a person and should not be forced. Awareness and education is the way forward. Not forced savings. Yes, behaviour is key, but so is freedom. We must be free to behave as we live, make mistakes and live and learn. See: Has the new tax regime destroyed the habit of saving?

Our recommendations:
  • Stop fresh investment in ELSS funds.
  • Start investing in existing funds. If you want, you can also consider investing in index funds. But if you are happy with your existing non-ELSS funds, you can stick with them.
  • Each time you have to rebalance, or when the ELSS fund gains reduce to zero or less or when you are unhappy with its performance, you can redeem and make necessary adjustments to your asset allocation. There is no hurry to do anything now.
  • The same recommendation also applies to those holding regular plan MFs for several years. Swith fresh investments to direct plans and gradually shift from time to time. There is no hurry.