Several investors resort to tax saver mutual funds – ELSS (Equity-Linked Savings Scheme) to save on their tax. ELSS funds are a go-to investment option to millions of investors due to a number of reasons. These tax-saving mutual funds help investors to enjoy the dual benefits of tax-saving opportunities and capital appreciation incentives. However, several investors are confused regarding a certain aspect of their ELSS investments. When is the right time to sell their ELSS investment? In this article, we will try to answer this question for you.
What are ELSS funds?
ELSS funds are tax-saving mutual funds that invest most of their assets (a minimum of 80% of their assets) towards equities and equity-related instruments. These mutual funds are eligible for a tax deduction of up to Rs 1.5 lac per annum u/s 80C of the Income Tax Act, 1961.
In simple terms, you as an investor can save up to Rs 46,800 each year by investing in these tax-saving mutual funds provided that you belong to the highest income tax slab. ELSS mutual funds are accompanied with a mandatory lock-in duration of three years. This also happens to be one of the shortest lock-in periods against other Section 80C investments.
When is the right time to sell your ELSS investments?
Before we get to the right time to sell your ELSS investments, let’s quickly understand the concept of lock-in periods.
Lock-in periods are applied to all ELSS installments. This might get a little tricky for ELSS investments through SIP mode of investment. This is because, after the period of 3 years, only your first SIP installment would have finished a period of three years.
On the other hand, the last SIP installment would have barely completed a period of 1 month. So you must be careful that all your SIP installments complete the mandatory lock-in period of three years or 36 months. In simple words, each SIP installment act as a new ELSS investment. Remember, the online mode or the app would not allow you to sell your ELSS investments without the completion of the lock-in period.
Now, the question arises should you sell your ELSS investments once they finish your lock-in period. Even though you can sell your ELSS investments once you complete the mandatory lock-in duration of three years, experts advise you not to do so. ELSS investments are best suited for long-term objectives. This is because ELSS investments are equity-linked instruments and equity investments tend to offer their maximum potential when invested for a longer duration.
Experts advise their clients to link their long-term financial goals with their ELSS investments. This will ensure that you do not exit your ELSS investments at the slightest hints of volatilities and uncertainties. This will ensure financial discipline. Also make sure that you invest in ELSS funds after careful analysis of your financial objectives, risk profile, and investment horizon. Happy investing!
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