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ELSS, i.e., the Equity Linked Savings Scheme is still struggling the Indian mutual fund industry to get established. The investors are afraid of the equity market fluctuations due to which they opt for LIC, PPF, FDs, etc., to save taxes. These instruments have established a stagnant position in the market as people have more trust in them. However, due to various economic factors like inflation, lower interest rates, etc., they are gradually losing their position. With time and awareness spread by various initiatives taken by the regulatory authority of mutual funds, investors have at least started gaining interest in the ELSS funds due to several benefits they offer over others.
ELSS mutual fund offers tax savings along with capital growth and has attracted various investors. Still, people hesitate to invest in them due to the volatility factors involved which makes it quite riskier. But if we consider its features which include the lowest lock-in, greater returns, tax savings, and wealth creation, it is no wonder to say that it is the best 80C investment. For the convenience of the investors, here are some of the situations when ELSS investments are not beneficial.
Post Retirement If you are looking for investment in the ELSS for tax savings after your retirement, then you must avoid it. The retired age is that time of one’s life when one should opt for such investments which provide liquidity and tax savings along with fixed income. ELSS funds have a three years lock-in period before which one cannot redeem the capital, and the money gets locked while reducing the liquidity. Moreover, being subject to market risk, the returns in the ELSS plans are not guaranteed, and you may end up losing your money. So it is advised that these funds should be ignored for the purpose of tax savings after attaining your retirement.
Conservative Risk Profile If an investor’s risk appetite is conservative or low, then he/she should not invest in ELSS funds. The reason being is that these are highly volatile in nature and does not guarantee profits. A conservative investor always looks for growth with the security of the invested capital and a little fluctuation in their portfolio makes them worried. So if you are among those, you must look for other alternatives to make a safe play.
Investment Horizon Less Than 5 Years If you have a short-term financial goal of fewer than five years, then you should ignore Tax Saving Mutual Funds as a part of equity investments. The schemes in this category have a multi-cap portfolio which invests in small- and mid-cap stocks, and thus bears high risk. For a period of five years or less, ELSS may not perform that good and lead to losses.
Investing At the End of Financial Year Most of the time people look for tax saving investments in the last quarter and even in the last month of the financial year. This is because at that time they have to submit the investment details to the employer or CA for the purpose of filing a tax return. But one has to realise that this is the wrong way to invest in ELSS mutual funds. Taxes must be pre-planned so as to gain some other benefits than just tax saving.
Accordingly, you must have understood that the four situations when ELSS investments can be proved wrongful for your portfolio. Taking an informed decision is a necessity in the case of investments, and when it is related to ELSS Mutual Funds, one has to be sure. So if you find ELSS investment beneficial for you, you must avoid these factors. MySIPonline is one among the mutual fund investment platforms which provide tremendous solutions for investing easily. You can opt for them to start ELSS online investments right away.