Equity Linked Savings Scheme (ELSS), a tax-saving mutual fund, comes with a lock-in period of three years. Many investors consider ELSS only for tax saving purpose and encash it soon after the lock-in period is reached. However, experts suggest against it.
They call this enchasing process an under-utilisation of ELSS’ growth potential.
Most ELSS funds are essentially long term oriented multi-cap funds. This means that they invest in a wide array of companies across market capitalisation, keeping in mind the long-term growth of companies.
Like any other equity scheme, they have the capability of generating good tax efficient returns if the scheme performs well (in the long term).
"So, if the scheme is doing well, continue with it. If the investment is via Systematic Investment Plan (SIP) mode, then each of the installment is considered as a fresh investment, so keep a track of the redeem ability of the same after three years," explains Palka Chopra, senior vice president, Master Capital Services.
According to Prateek Mehta, co-founder of Scripbox, ELSS funds have the potential to give double-digit returns over 7+ years.
Experts also suggest starting the investment cycle at the beginning of the financial year itself through a SIP in ELSS funds.
"It is better than waiting till the last minute and then investing a heavy lump sum. One should invest in the growth option, where the money is reinvested and let it to grow till the time one has to redeem it," Mehta added.
However, this is possible only when somebody has the necessary risk appetite and investment horizon.
"If that is not the case, stop the investments once the lock-in period is reached," experts say.