ELSS Investment Dilemma: Should I Reinvest or Switch my SIP?

Ans: For a high-risk appetite and a 4-5 year horizon, you can consider diversified ELSS funds known for consistent performance and managed by experienced professionals. Look for funds with a track record of outperforming their benchmarks and peers. Always remember to monitor your investments regularly and consult a financial advisor for personalized advice.

Ans: Absolutely, you can stop investing in one ELSS fund and allow the existing investments to mature. ELSS funds have a lock-in period of three years from the date of each investment, so once the lock-in period is over for each SIP, you have the option to either redeem the units or continue holding them.

When you stop SIPs in ELSS funds, the existing investments continue to grow, and you retain ownership of the units. However, keep in mind that stopping SIPs doesn't impact the lock-in period of the existing investments. Each SIP installment will have its own lock-in period of three years from its investment date.

If you're looking for high-risk, high-return investments for the next 2-3 years, it's essential to assess your risk tolerance and investment horizon carefully. ELSS funds, especially those investing in small-cap or mid-cap stocks, can be volatile in the short term but may offer higher returns over the long term.

Additionally, investing in individual stocks requires thorough research and a good understanding of the stock market. It's wise to approach stock investing cautiously, especially if you're relatively new to it. Diversification and thorough research are key to managing risk in stock investments.

Overall, it's great that you and your spouse are both working towards your financial goals and are open to taking calculated risks for potentially higher returns. Remember to regularly review your investment portfolio, stay informed about market developments, and adjust your strategy as needed to stay on track towards your goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Assessing Your Current Situation
You have accumulated investments in ELSS. These investments have given fair performance. The lock-in period is over. You are considering whether to keep the corpus in ELSS or shift it to equity funds for better returns.

Understanding ELSS and Equity Funds
ELSS (Equity Linked Saving Scheme)
Tax Benefits: ELSS offers tax benefits under Section 80C.
Lock-in Period: ELSS has a mandatory three-year lock-in period.
Equity Exposure: ELSS invests primarily in equities.
Equity Funds
No Lock-in Period: Equity funds don’t have a lock-in period.
High Growth Potential: Equity funds can offer high growth.
Risk Factor: Equity funds come with market risks.
Current Scenario
No Further Tax Benefit: Under the new regime, ELSS doesn’t provide additional tax benefits.
Investment Performance: Your ELSS is performing fairly.
Evaluating the Options
Advantages of Shifting to Equity Funds
Higher Growth Potential: Equity funds might offer better returns.
Flexibility: No lock-in period allows for more flexibility.
Active Management: Actively managed funds can outperform index funds.
Disadvantages of ELSS
Limited Flexibility: Lock-in period restricts liquidity.
Tax Considerations: Post lock-in, capital gains are taxable.
Disadvantages of Direct Funds
Research Requirement: Direct funds need thorough research.
Time-Consuming: Managing direct funds takes time.
Professional Expertise: Regular funds through CFP offer better management.
Recommendations
Consider Your Financial Goals
Long-term Growth: If you aim for long-term growth, equity funds can be beneficial.
Liquidity Needs: Assess your need for liquidity. Equity funds offer better liquidity.
Diversify Your Portfolio
Reduce Risk: Diversification reduces risk.
Balance Returns: A mix of equity funds and other investments balances returns.
Professional Management
Regular Funds: Invest through a certified financial planner.
Expertise: Professional management can enhance performance.
Action Steps
Review ELSS Performance: Regularly review the performance of your ELSS.
Assess Equity Funds: Evaluate equity funds with good track records.
Consult a CFP: Get advice from a certified financial planner.
Final Insights
You have made wise investments in ELSS. Since the lock-in period is over, you have options.

Shifting to equity funds could enhance your returns. Ensure you diversify and balance your portfolio. Professional management can guide you to better performance.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Naveen, thank you for reaching out. Investing in ELSS funds is a good choice, especially considering tax-saving benefits. Stopping your SIPs due to monthly expenses is understandable, but restarting is crucial to achieving your financial goals.

Let’s address your two concerns one by one.

Question 1: Achieving Rs. 5 Crores in 10 Years
You aim to accumulate Rs. 5 crores in the next 10 years, with an expected 20% annual growth. While this is a high target, it’s not impossible. But I must highlight that 20% returns over 10 years are aggressive, and the market may not guarantee such consistent growth. Equity mutual funds, however, can potentially give you strong returns if you stay disciplined.

Steps to Achieve Rs. 5 Crores in 10 Years
Daily SIP Approach:
Daily SIP is a good way to spread out your investments. It allows for better averaging as the market fluctuates daily.

Focus on Equity Mutual Funds:
For such high returns, equity mutual funds are ideal. These funds have a strong track record of delivering long-term growth. However, keep in mind that they come with market risk.

Avoid Setting Unrealistic Return Expectations:
A 20% return every year is optimistic. A more realistic return from equity funds would be around 12% to 15%. Anything beyond that would require consistent high-performing market conditions.

Recommended Strategy
Diversified Equity Funds:
Instead of chasing returns with a single fund, diversify your investments across various equity funds. This reduces risk and ensures balanced growth.

Mid and Small Cap Funds:
These funds offer higher returns but come with more volatility. You can allocate a portion of your investments to these funds for higher growth potential.

Large Cap Funds:
They offer stability. Having some exposure to large-cap funds can help you maintain balance in your portfolio.

Avoid Index Funds:
Index funds might not meet your target as they only track the market. Actively managed funds can provide better returns through stock selection.

Calculating SIP Contribution
Achieving 5 Crores in 10 Years:
If you want to achieve Rs. 5 crores in 10 years, based on a more realistic 12% to 15% annual return, you would need to invest a significant amount every month. A Certified Financial Planner can help you calculate the exact monthly SIP amount based on your goal and risk tolerance.
Question 2: Should You Continue ELSS SIP or Shift to Hybrid Funds?
Your current ELSS investment in Axis Long Term Equity Fund is a tax-saving fund with a 3-year lock-in period. Since you’ve already completed the minimum holding period, you may wonder if it’s wise to continue or switch to a different type of fund.

Assessing ELSS Funds
Tax Benefit:
ELSS funds provide tax benefits under Section 80C. This is a significant advantage if you still need to save tax. Continuing with your ELSS investment can help you keep your tax-saving advantage.

Equity Exposure:
ELSS funds are equity-oriented, which means they have good long-term growth potential. If your goal is to build wealth over time, equity exposure is necessary.

Disadvantages of Switching to Hybrid Funds
Lower Returns:
Hybrid funds invest in a mix of equity and debt, which may offer lower returns compared to pure equity funds. While they are less volatile, their growth potential may not meet your goal of Rs. 5 crores in 10 years.

Not Ideal for High Growth:
If you want aggressive wealth creation, hybrid funds may not be the best fit. Their balanced approach is better suited for those with low to moderate risk tolerance.

What You Should Do
Continue with ELSS:
Since you’ve already started with Axis Long Term Equity Fund, consider continuing for a longer period. ELSS funds provide both tax benefits and growth. You’ve already endured the initial market volatility, and over time, equity funds tend to deliver better returns.

Avoid Hybrid Funds for Now:
If your goal is aggressive wealth creation, hybrid funds might not align with this. Instead, stick to equity funds with a high growth potential.

Final Insights
Set Realistic Expectations:
While you aim for 20% annual returns, the market is unpredictable. A more realistic expectation of 12% to 15% will help you stay grounded and focused.

Daily SIPs Can Be Helpful:
A daily SIP strategy can help you achieve better averaging. However, for high returns, focus on equity funds with a long-term horizon.

Continue Your ELSS Investments:
Since you’ve already invested in Axis Long Term Equity Fund, consider continuing with it. It offers both tax benefits and long-term growth.

Consult with a Certified Financial Planner:
To determine the exact amount you should invest monthly, it’s essential to work with a professional. They can help you build a diversified portfolio aligned with your goals.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in