Getty ImagesMany mutual fund investors believe that they must sell their investments in an Equity Linked Savings Scheme (ELSS) after three years. They seem to believe that like all tax-saving investments ELSS matures after the mandatory lock-in period and investors are supposed to sell their investments at that time. Is it true?
Well, it is true that ELSS funds, like all tax saving investments, come with a mandatory lock-in period. In fact, ELSS funds have the shortest lock-in period of merely three years. However, is it mandatory to sell these schemes after the lock-in period?
No, it is not necessary to sell these schemes after the mandatory lock-in period. You may continue with the scheme if it is performing well. In fact, most mutual fund advisors ask their clients to link their ELSS investments to their long-term goals and stay invested in these schemes. Many advisors argue that linking ELSS investments to their goals help investors to stay focused on their goals.
So, when should you think of selling your ELSS investments? If you are following the above strategy and linked your ELSS funds to a financial goal, you should sell them a few years before your goal. You should always shift the money from risky investments like equity mutual funds to safer avenues like bank deposits and debt mutual funds at least a year or two before you goal. This will protect your money from the vagaries of the stock market.
You may also consider selling your ELSS funds if they start underperforming their benchmark and category for a long period. Apply the same rules of selling strategy you employ for your regular equity mutual funds to ELSS funds, too. If you find the scheme lagging both its benchmark and category average by a wide margin for a year or two, you should try to find the reason behind its lacklustre performance. If you don’t find the reason valid enough, you may consider selling.
Most ELSS funds follow a multi cap strategy. That means these schemes can invest across market capitalisations based on the outlook of the fund manager. If you are a conservative equity investor, this may not suit you. In such cases, the investor may consider selling the ELSS funds after the mandatory lock-in period and shift the money to a large cap scheme to be in line with her risk profile.
Well, it is true that ELSS funds, like all tax saving investments, come with a mandatory lock-in period. In fact, ELSS funds have the shortest lock-in period of merely three years. However, is it mandatory to sell these schemes after the lock-in period?
No, it is not necessary to sell these schemes after the mandatory lock-in period. You may continue with the scheme if it is performing well. In fact, most mutual fund advisors ask their clients to link their ELSS investments to their long-term goals and stay invested in these schemes. Many advisors argue that linking ELSS investments to their goals help investors to stay focused on their goals.
So, when should you think of selling your ELSS investments? If you are following the above strategy and linked your ELSS funds to a financial goal, you should sell them a few years before your goal. You should always shift the money from risky investments like equity mutual funds to safer avenues like bank deposits and debt mutual funds at least a year or two before you goal. This will protect your money from the vagaries of the stock market.
You may also consider selling your ELSS funds if they start underperforming their benchmark and category for a long period. Apply the same rules of selling strategy you employ for your regular equity mutual funds to ELSS funds, too. If you find the scheme lagging both its benchmark and category average by a wide margin for a year or two, you should try to find the reason behind its lacklustre performance. If you don’t find the reason valid enough, you may consider selling.
Most ELSS funds follow a multi cap strategy. That means these schemes can invest across market capitalisations based on the outlook of the fund manager. If you are a conservative equity investor, this may not suit you. In such cases, the investor may consider selling the ELSS funds after the mandatory lock-in period and shift the money to a large cap scheme to be in line with her risk profile.
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