Summary of this article
ELSS losing popularity as Section 80C tax appeal fades
DSP says lock-in improves discipline during volatile markets
DIY equity investors hold for 2.5 years on average
ELSS via SIP can work as year-round equity allocation
With tax considerations under Section 80C becoming less relevant for a growing segment of investors, Equity Linked Savings Scheme (ELSS) funds have seen reduced inflows from investors in recent years. DSP Mutual Fund believes, however, that the structural features of ELSS, particularly the mandatory three-year lock-in, continue to hold relevance, albeit for reasons beyond taxation.
“Investor outcomes are often impacted less by product selection and more by behaviour,” says Manish Rathi, Head – Consumer Growth Marketing, DSP Mutual Fund. “In periods of volatility, investors tend to exit early, chase momentum, or respond to short-term market noise. The lock-in feature of ELSS can help reduce these tendencies by encouraging investors to remain invested through cycles.”
According to data from DSP, the average holding period for digital, do-it-yourself equity investors is approximately 2.5 years, shorter than what is typically required for long-term wealth creation. In this context, ELSS, with its statutory three-year lock-in and diversified equity exposure, functions similarly to a flexicap-style equity product in terms of construct and historical outcomes, while adding an element of enforced investment discipline.
“This makes ELSS relevant for today’s investor environment,” Rathi adds. “When the natural inclination is to react to short-term market movements, a product structure that nudges investors to stay invested for longer can improve the probability of better outcomes.”
The perspective also challenges the traditional view of ELSS as a seasonal, lump-sum product concentrated around the January to March tax period. DSP Mutual Fund is encouraging investors to consider ELSS as part of a systematic investment plan (SIP) approach, allowing it to function as a year-round allocation rather than a tax-driven decision.
“Long-term investing tends to work best when it is structured and uninterrupted,” says Rathi. SIPs into ELSS, he adds, help introduce that structure, while the lock-in reduces the risk of premature exits during volatile phases.
DSP Mutual Fund believes that ELSS funds are not primarily a tax-saving instrument, but they can help address behavioural gaps in long-term investing. The fund house asks investors to treat ELSS funds as a practical behavioural tool for long-term equity investing, particularly for those who struggle with consistency rather than as a product defined solely by tax benefits.
