What do you do when your investments in tax saving equity linked savings schemes (ELSS) , consistently produce disappointing performances? Here are some answers.
Hello and welcome to FundooMoney, your 24X7 buddy for all your money matters! Many of us know that equity linked saving scheme (ELSS), offered by mutual funds, help you to not only get tax deduction of up to Rs 1.5 lakh annually but also provide growth typically generated by equity investments in the long term. Over time, many investors have faced a particular dilemma. ELSS has a lock in period of three years i.e. the money cannot be withdrawn before three years. But what does an investor do when their ELSS constantly underperforms after the three-year lock-in period? We give you the answers but in just a little while.
Exit on persistent underperformance It makes sense to exit from your ELSS if it continues to underperform with respect to its benchmark and peers. Therefore, before pressing the exit button, you need to do a thorough research. Re-invest in consistently performing equity funds A common mistake of investors in underperforming ELSS is that they invest their redemption proceeds in fixed deposits i.e. take money out of equities. Over time, such investments get hammered by inflation, typically high in India. Instead, they should invest equity funds with a consistent one-, three- and five-year performance track record. This will help them get the long-term growth, one typically gets from equities. Remember, studies have shown that as much as 90% of the long term returns one gets can be attributed to the asset class one chooses.
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