ELSS (Equity Linked Savings Scheme) is one of the most popular financial investment instruments all over the market. ELSS helps to save tax and also helps to build wealth at the same time. ELSS offers tax benefits under the 80C. An ELSS fund comes with a lock-in period of three years. The only ELSS gives full exposure to equity. There is some risk in equity but with the help of short lock-in period ELSS, Mutual Fund became the most attractive tax saving instrument of nowadays.
ELSS Mutual Fund is not just only for tax saving it is also for growing wealth. Like any other equity mutual fund, this fund also invests its majority shares in equity.
ELSS funds come with a lock-in period of three years but if you stay invested even after three years it is a good investment choice. Some get confused if they should stay invested or withdraw their money here are some tips to follow what options you have when the three years of lock-in periods end in ELSS funds.
The performance analysis
Many investors make a common mistake which is as soon as their ELSS investment complete three years they redeem their money and again invest the same amount in fresh ELSS fund to claim the tax benefit of that year. It is not a right stratagem because your money won’t grow and your future goal won’t succeed and there is also a chance that after the three years your return won’t be that good.
If you want a good return from your ELSS Mutual Fund you should be invested at least for five years.
After the lock-in period of three years, the investor should analyze the performance of that fund. If the fund performed lower than the benchmark or if that fund has given regular returns. It does no matter if your ELSS Mutual Fund performed so well in last two or three months you should check the performance of that fund at least 1 year. If your fund has failed to give a regular return you should change your fund in another open-ended equity fund for a better return. If you are confused consult with your financial adviser.
Investment in a Multi-cap Fund
ELSS investment is also for growing wealth. ELSS Fund is also like any other equity mutual fund. An ELSS fund invests like multi-cap funds so the investors can get return regularly and also they don’t have to take so much risk. Most of the time these kinds of funds invest across market capitalization, in large-cap category stocks.
Some analyst has proven that ELSS mutual funds have given a better return than the large-cap funds on a risk-adjusted return basis over the performance of five to ten years.
When you first invest your money in ELSS Mutual Fund you get a long term advantage over the tax advantage.
ELSS has enough flexibility to invest in market capitalization. Under the new SEBI guidelines, there is no particular specification market capitalization within the equity basket.
Cash after the lock-in period?
People should not leave just for the lock-in period is over. If it is really emergency only then you should redeem your money. You also can remember one thing always you don’t have to redeem the whole amount you just can redeem a small amount of that money. There is no exit load in ELSS investment and as well as there is no rate of tax.
Is it mandatory to redeem after the lock-in period?
No, this is not mandatory to redeem your money from ELSS Mutual Fund after the lock-in period, if your ELSS Fund is performing well you should stay invested as per your investment goal.
But, if you see it is not meeting your investment goal you can redeem your money from that ELSS Fund and can invest in similar better funds. Three years is a really long time so you should be careful before you invest.