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Should I switch from Axis ELSS after 8 years?

Ramalingam Kalirajan |8330 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Aug 29, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more

Asked by Anonymous - Aug 26, 2024Hindi

I am investing in Axis long term else since last 8 years. I have got decent returns over the years but I feel the returns are not good as compared to other funds. Please advise if I can stop the sip in axis else and start in another elss fund or continue the same. Please suggest good elss to start sip.

Ans: Assessing Your Current ELSS Investment
You have been investing in Axis Long Term Equity Fund for the past eight years. First, congratulations on your discipline in sticking to your investment plan. Over this period, you have seen decent returns, but you are concerned about the performance compared to other funds.

This is a valid concern, and it’s important to assess whether your money is working hard enough for you.

Performance Evaluation of Axis Long Term Equity Fund
While Axis Long Term Equity Fund has been a popular choice among investors, recent trends suggest that it might not be performing as well as some other ELSS funds. Market conditions, fund management changes, or shifts in the portfolio can impact returns. It’s crucial to evaluate whether the fund's performance aligns with your expectations and financial goals.

Understanding ELSS and Its Benefits
Equity Linked Savings Schemes (ELSS) are tax-saving mutual funds that invest primarily in equities. They come with a lock-in period of three years, making them a long-term investment. The primary advantage of ELSS is that it offers tax deductions under Section 80C of the Income Tax Act. However, beyond tax benefits, ELSS should provide solid returns over time.

Disadvantages of Index Funds
While some investors consider index funds, it’s essential to recognize that actively managed ELSS funds often outperform index funds. Index funds merely replicate the market, lacking the ability to capitalize on emerging opportunities or avoid underperforming sectors. Active fund managers can make strategic decisions that potentially enhance returns, especially in a dynamic market like India.

Direct Funds vs. Regular Funds
Investing in direct funds might seem attractive due to the lower expense ratio. However, direct funds lack the guidance of a Certified Financial Planner (CFP), which can be crucial for long-term success. Regular funds allow you to benefit from the expertise and advice of a CFP, ensuring your investments align with your goals and risk tolerance.

A CFP can help you choose the right funds, monitor your portfolio, and make adjustments as needed. The small additional cost of regular funds can be well worth the benefits of personalized advice and ongoing support.

Evaluating the Need to Switch Funds
If you feel that Axis Long Term Equity Fund is underperforming, it may be time to consider switching to a different ELSS fund. However, it’s essential to make this decision based on a thorough analysis. Here are a few steps to consider:

Check Consistency: Look at the fund’s performance over different time frames (1 year, 3 years, 5 years). Consistent underperformance across these periods may indicate a need for change.

Compare with Peers: Evaluate how the fund performs compared to other ELSS funds. This comparison should include returns, risk ratios, and fund manager strategies.

Review Fund Management: Changes in the fund management team or strategy can significantly impact performance. If there have been recent changes, it might be worth considering a switch.

Assess Your Goals: Ensure that your financial goals haven’t changed. If your risk tolerance or time horizon has shifted, your fund selection may need to be adjusted accordingly.

Suggested Strategy for Switching ELSS Funds
If you decide to switch from Axis Long Term Equity Fund, here are some strategies to consider:

Diversification: Instead of putting all your money into one ELSS fund, consider splitting it across two or three well-performing funds. This reduces risk and increases the chances of better returns.

Focus on Long-Term Performance: Choose funds that have shown consistent performance over the long term. Avoid chasing short-term gains, as they can be volatile and unpredictable.

Consider Fund House Reputation: Invest in ELSS funds from reputed fund houses with a proven track record of managing equity funds. This adds a layer of security to your investment.

Monitor Regularly: Even after switching, it’s essential to keep an eye on the performance of your new ELSS funds. Regular reviews with your CFP can help ensure that your investments remain on track.

Benefits of Working with a CFP
Partnering with a CFP can provide significant advantages. They can help you choose the best ELSS funds based on your financial goals, risk tolerance, and market conditions. A CFP can also guide you on when to switch funds, how to rebalance your portfolio, and how to optimize your tax savings.

Final Insights
Investing in ELSS is an excellent way to save tax and grow your wealth. While you’ve done well by staying invested in Axis Long Term Equity Fund, it’s wise to re-evaluate if it’s not meeting your expectations. By considering other well-performing ELSS funds and working with a CFP, you can enhance your returns and continue to achieve your financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.