The BSE Sensex hit 60,000 and its counterpart, the Nifty50, moved towards 18,000 steadily on Friday- much to excite the investors who are eyeing meaty gains in equity mutual funds. However, it’s that point of time when many investors are even questioning the investment rationale. First is the class of investors who waited on the sidelines for the market to correct, and second are those whose investments are geared for the long-term, i.e. investors in Equity Linked Saving Scheme (ELSS).
The question of whether an investor should invest in ELSS when markets are trading at an all-time high is tricky, said Abhinav Angirish, Founder at Investonline.in while speaking to CNBC-TV18.
“Markets never move in a linear fashion. There are ups and downs. Hence, it does not make sense to look at short-term market performance while investing in ELSS funds,” he said.
In the short run, markets go up, down and sideways and these fluctuations are expected with equity investments.
So, how should one make an investment decision when it comes to ELSS?
Answering this, Prateek Mehta, Co-founder at Scripbox said that investment decisions shouldn’t be based on market timing and ELSS investing should not be looked at from a short-term perspective.
“Even though ELSS investments are generally with a minimum lock-in of three years, it is still beneficial to link these investments with longer-term goals,” Mehta said while interacting with CNBC-TV18.
The people who invest in ELSS do so for tax benefits. ELSS has a three-year lock-in period which is least among the various instruments available under Section 80C. The lock-in period here acts as a cushion against sudden volatility but what makes ELSS funds attractive is their ability to deliver decent returns since their performance is linked with markets.
Talking about the recent performance, Angirish of Investonline.in said that the 1-year, 3-year and 5-year annualized growth of ELSS funds has been in the range of 53 percent, 14 percent and 14.20 percent respectively.
"So, instead of timing the market, an investor should focus on spending more time in the market," he advised.
But, what should investors do if markets are down after the lock-in period ends?
Well, in that case, Angirish suggested that individuals can wait for another year or two to redeem investments.
“Equities always tend to drift upwards in the long term regardless of crashes that are like a blip on the radar,” he stated.
And, how should one spread ELSS investments?
On this, Mehta said that it's important to spread out investments evenly through the year via Systematic Investment Plan (SIP), rather than making all the investments in one go to mitigate any impact from short-term market movements.
“This also helps spread the risk, based on the ups and downs of the market, even if the markets are at an all-time high because these highs only reflect expectations of the future,” he said.
So, what exactly is the right time to start ELSS?
Since ELSS is a tax-saving instrument one should start investing from April itself, said Angirish.
“Many people scramble at the end of the year to take advantage of tax benefits. Not only does this cause loss of returns but also adds stress to one’s finances,” he told CNBC-TV18.
Disclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.
(Edited by : Abhishek Jha)