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What should investors do with ELSS funds amid the new tax regime? - Vidhya Kadam [EasyDNNnews:PaidContentStart]

With the new tax regime offering lower tax rates but no deductions, many investors are re-evaluating their investments in equity-linked savings schemes (ELSS). The key question is: Should you continue investing in ELSS despite the new regime? First, if you have already invested in ELSS funds, there’s no immediate need to exit. ELSS remains a strong wealth-building tool due to its equity exposure and potential for long-term capital appreciation. Even without the tax-saving benefit, ELSS funds are fundamentally diversified equity mutual funds with a lock-in period of three years, which encourages disciplined investing. If you are in the old tax regime and claiming Section 80C benefits, ELSS remains a valuable option for tax savings. 

However, under the new regime, where deductions are not available, the decision should depend on your financial goals rather than just tax benefits. If your aim is long-term wealth creation, you may continue with ELSS funds, provided they align with your risk appetite. Alternatively, you may explore other diversified equity mutual funds without the lock-in constraint. Ultimately, ELSS should not be viewed solely as a tax-saving instrument but as a potential long-term wealth generator. If you are comfortable with equity exposure and a three-year lock-in, ELSS funds can still be a part of your investment portfolio, even under the new tax regime. 

Is it wise to invest in a fund of funds (FoF) scheme? - Abhijeet Chavan 

A fund of funds (FoF) scheme, which invests in multiple mutual funds rather than directly in stocks or bonds, can be a strategic choice for investors depending on their financial goals and risk appetite. These funds offer broad diversification by spreading investments across various underlying funds, thereby reducing concentration risk. They are managed by professionals who allocate assets strategically, making them a suitable option for individuals who may not have the time or expertise to analyse and select individual funds. The convenience of investing in a curated basket of funds is a major attraction for many investors. 

However, there are some considerations before investing in a FoF scheme. One significant drawback is the higher cost. Since a FoF scheme invests in other mutual funds, investors bear the expense ratios of both the FoF scheme itself and the underlying funds, making them relatively expensive compared to direct investments in mutual funds. Taxation is another concern. Unlike equity mutual funds, most FoF schemes (except international ones) are taxed as Debt Funds, meaning long-term capital gains are taxed at slab rates rather than benefiting from equity taxation. Additionally, the performance of a FoF scheme is entirely dependent on the underlying funds. If those funds underperform, the returns of the FoF scheme will also be impacted, which may not always make them a superior choice over direct investments in well-performing equity or Hybrid Funds. FoF schemes can be a compelling option for investors looking to diversify across asset classes such as domestic and international equities, debt, gold, or thematic sectors like ESG. However, for those prioritising cost efficiency and direct equity exposure, a well-managed equity mutual fund might be a more effective investment avenue. If you decide to invest in a FoF scheme, it is crucial to choose one with a clear investment objective, a strong track record, and reasonable costs to ensure optimal returns.

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