When Should You Not Invest in ELSS?

When Should You Not Invest in ELSS

In the past few years, ELSS has become the most popular tax saving option in India. But just because everyone is investing in ELSS does not mean that you too should blindly invest in ELSS. 

While ELSS has the shortest lock-in period of 3 years among all other tax saving options, in essence it is still an equity fund. So, when you invest in ELSS, your investment is subject to market risks and volatility. 

Therefore, today we will understand scenarios where you should not invest in ELSS. 

1. You should not invest in ELSS if you expect guaranteed returns: As mentioned earlier, ELSS are equity funds i.e. they invest 80% of their corpus in equity and equity related instruments. This makes them prone to market fluctuation and risks. So, if you want to generate guaranteed returns while saving tax, then you should not invest in ELSS. 

2. You should not invest in ELSS if you want liquidity: ELSS funds are compulsorily (and statutorily) locked-in for 3-years. This means that under no circumstances can you redeem from ELSS funds before the lock-in period is complete. This is quite unlike other tax saving options like PPF, Insurance policies etc which have a premature withdrawal option. So, if you want short-term liquidity, then you should not invest in ELSS

3. You should not invest in ELSS if you are scared of the stock market: If you are a conservative risk taker, then ELSS funds are not suitable for you. You should rather invest in PPF, NSC, 5-Year Bank FD etc. 

4. You should not invest in ELSS if you are in post-retirement stage: Senior citizens have a lot of conservative tax saving options which also offer a higher rate of return like the 5-year Bank FDs. These investments also have the option for premature withdrawal, which is perfect for retirees, which may have emergency liquidity needs. 

5. You should not invest in ELSS if you are investing at the end of the year: To gain maximum returns from your ELSS investments, you should try to invest in ELSS through a systematic investment plan instead of lumpsum investment so that you get rupee cost-averaging. If you do decide to invest in ELSS via lumpsum, then invest as close to the start of the financial year as possible i.e. in April itself. This will ensure maximum compounding. 

6. You should not invest in ELSS if your investment time horizon is less than 5 years: While ELSS has a lock-in period of 3 years, you should not invest in ELSS if you cannot hold the investment for minimum 5 years since it is an equity fund and needs ample time to grow. So, if your time horizon is short-term, then you should not invest in ELSS.  

To sum up, do not invest in ELSS if: 

  • You want guaranteed returns
  • You have a conservative risk profile
  • You want high immediate liquidity 
  • Your investment time horizon is less than 5 years
  • You are in your post-retirement and want liquidity. 
  • You are investing in ELSS at the very end of the financial year. 

If you are a long-term investor, with a medium-high risk profile and want to create wealth, while also saving taxes, then ELSS is the best tax saving option for you.

Here is the list of the Best ELSS funds in India for 2020-2021: 

Best ELSS Funds RankMF Rating 1 Year 3 Years 5 Years Since Inception
Axis Long Term Equity Fund 5 Star 3.04% 7.94% 10.83% 16.07%
Canara Robeco Equity Tax Saver Fund 4 Star 13.85% 9.58% 11.23% 18.45%
Aditya Birla Sun Life Tax Relief ’96 Fund 4 Star 1.69% 1.73% 8.95% 9.83%
UTI Long Term Equity Fund 4 Star 7.35% 3.28% 8.34% 10.29%
Kotak Tax Saver Fund 4 Star 4.57% 3.87% 9.57% 10.97%

As mentioned earlier, SIP is the best way of investing in ELSS, but what if there was an option to increase the power of compounding? Sounds great right? This is exactly what RankMF’s SmartSIP feature does. 

SmartSIP is a unique feature which invests in liquid funds when markets are expensive  instead of buying  expensive equity units. Similarly, when markets fall, it doubles the SIP amount and buys more units at a cheap price. 

SmartSIP follows the Warren Buffett philosophy of being greedy when others are fearful and being fearful when others are greedy. 

To invest in the best ELSS in India in 2020-2021 through the Warren Buffett way, open a Samco Demat and trading account today and get exclusive and FREE access to RankMF – The best mutual fund investment platform in India.

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2 Comments

  1. Ashok Kumar soni

    Can we invest in elss mutual funds through smart sip, can we start smart sip without opening a DEMAT account as we want to participate in direct elss mutual funds, what will be your annual maintenance charges for handling smart sip,how safe is it to permit you to handle our amount to be handled by you, as in smart sip selling at heigher level and purchasing at lower for this definitely u have to redeem unit to sell at high and if it’s done before one year then will exit charges applicable on investors or not, if unit sold at higher levels before one year than investors will be charged short term capital gains tax or not, if I invest through in smart sip then investments will be made in regular or direct mutual fund ? These are all my queries please reply, if I have to pay exit load, fee to maintain account, short term gains on profit, expense ratio, then I don’t think that you will be able to generate profit on investments. Please reply to all on my email : ashoksoni63891@gmail.com. Thanks.

    1. Team Samco

      Dear Customer,

      With regards to your query, we have forwarded it to the concerned department. They shall get back to you on your registered email id with the resolution.

      For any other queries/information, you can mail us on support@samco.in or raise a ticket on https://www.samco.in/support, our executive shall assist you on the same.

      Looking forward to serving you soon.

      Thanks & regards,
      Team Samco

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