DSP Mutual Fund has made a compelling case for Equity Linked Savings Schemes (ELSS) beyond their traditional tax-saving appeal, arguing that these products remain highly relevant even as the new tax regime reduces the significance of Section 80C benefits for many investors. The fund house emphasizes that ELSS should be viewed as comprehensive investment solutions rather than merely seasonal tax-saving products.

Addressing Behavioral Investment Challenges

The mutual fund house identifies a critical gap in investor behavior that ELSS can help address. According to DSP's internal data, the average holding period for digital, do-it-yourself equity investors stands at approximately 2.5 years, significantly shorter than optimal long-term investment horizons.

Manish Rathi, Head – Consumer Growth Marketing at DSP Mutual Fund, explains that investor outcomes are often impacted more by behavior than product selection. He notes that during volatile periods, investors frequently exit early, chase momentum, or respond to short-term market noise, behaviors that can significantly impact long-term returns.

ELSS Structure and Performance Benefits

DSP positions ELSS as functionally similar to flexicap-style equity products in terms of construct and historical outcomes, while providing the additional benefit of enforced investing discipline through the mandatory three-year lock-in period. This structure helps investors remain committed through market cycles, potentially improving investment outcomes.

The performance track record of leading ELSS schemes demonstrates their potential effectiveness:

Strategic SIP Approach Over Lump-Sum Investments

DSP advocates for a fundamental shift in how investors approach ELSS investments. Rather than treating these schemes as seasonal, lump-sum products concentrated around the January-March tax period, the fund house recommends systematic investment plan (SIP) approaches.

This strategy transforms ELSS from tax-driven decisions into year-round allocation tools. Rathi emphasizes that long-term investing works best when structured and uninterrupted, with SIPs providing the necessary structure while the lock-in period reduces premature exit risks during volatile market phases.

Market Context and Investor Access

While acknowledging that Indian investors today have broader access to equity products than ever before, DSP highlights that this increased access hasn't necessarily translated to better investment discipline. The challenge lies not in product availability but in maintaining consistent, long-term investment behavior through various market cycles.

The fund house's perspective suggests that ELSS can serve as a behavioral anchor, helping investors develop better long-term investment habits while providing diversified equity exposure. This approach positions ELSS as relevant tools for building investment discipline, regardless of their tax implications under different regime choices.

DSP Mutual Fund suggests that Indian markets are experiencing a fundamental transformation, comparing it to the revolutionary moment when Olympic high-jumper Dick Fosbury challenged conventional techniques in 1968. In its 2026 equity note titled "Beyond the Efficient Frontier," the fund house argues that traditional economic playbooks are losing their predictive power, requiring investors to adopt new approaches for market analysis.

Traditional Macro Signals Losing Reliability

The fund house identifies several global patterns that contradict historical economic relationships. Links between money supply and inflation, interest rates and recessions, and fiscal deficits and bond market stress are no longer behaving as expected, making macro forecasting increasingly unreliable.

Key global developments that break with past patterns include:

• Large-scale money creation failing to weaken the US dollar sustainably
• The fastest interest-rate tightening cycle in decades not triggering recession or prolonged equity decline
• Major geopolitical shocks not causing lasting oil price spikes
• Equities, bonds, and precious metals rising together in some periods

India's Consumption Patterns Transform

Despite global uncertainties, India's economy shows resilience with changing consumption dynamics. Private consumption contributed approximately 62% of India's ₹331.00 trillion GDP in FY25, though spending patterns have evolved significantly.

Data from the Household Consumption Expenditure Survey 2025 reveals food taking a smaller share of household budgets, while discretionary spending on vehicles, air conditioners, and smartphones has increased across income groups. The value of mobile phone sales has now overtaken passenger vehicle sales, reflecting this digital shift.

Market Structure and Valuation Changes

While headline valuations appear stable, DSP Mutual Fund notes significant internal market structure changes. The overall price-to-earnings ratio of the Nifty 500 has remained broadly flat over the past decade, but the distribution has shifted dramatically.

Corporate balance sheets have strengthened considerably, with net debt-to-equity for NSE 500 companies excluding banks improving from 54% in FY19 to 42% in FY26.

Challenges and Opportunities for 2026

The report identifies rising competition in previously concentrated sectors including paints, building materials, cables, soft drinks, grocery retail, and value fashion. Trade policy risks remain, with US tariff actions affecting exports, particularly in labour-intensive sectors such as textiles, apparel, jewellery, and agriculture.

DSP Mutual Fund describes 2025 as a transition year marked by slower earnings growth and tighter liquidity. For 2026, the fund house expects gradual improvement supported by easier financial conditions, policy measures, and a low earnings base. Investment opportunities are seen across banks and NBFCs, select IT services, healthcare, power, and parts of the consumer sector, with success depending more on valuation discipline and business fundamentals than macro forecasts.