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Should you stop investing in ELSS mutual funds after this financial year?

Taxpayers will have to finalise their investments before March 31, to claim tax breaks of up to Rs 1.5 lakh under section 80C. Here are some frequently asked questions about ELSS these days.

, ET Online|
Last Updated: Mar 04, 2020, 11.14 AM IST
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Financial Planner: Suresh Sadagopan, Founder, Ladder7 Financial Advisories, a financial planning firm, based in Navi Mumbai.

Questions frequently asked by investors:
1. Does it make sense to invest in ELSS at this point when the market is volatile?
2. Should we stop our ELSS investments after this financial year?
3. Can we opt for the new tax brackets this year?

His response to his clients:
We have seen a fall in the inflows into ELSS or tax saving mutual funds this year. The fall has been because of two-three primary reasons. One of them is the performance of ELSSs in the last couple of years. In the last few years, the market has seen a correction and then bouts of volatility. Some pockets in the market have performed and most of the segments have seen high volatility and risk. ELSSs are no different than the other schemes here. These schemes also saw volatility and returns going down. Sadly, the investors who come to the ELSSs for their last minute ta-saving, look at the past performance. This is why we have seen the fall.

Answering the first question, yes, it is always a good time to invest in an ELSS scheme if you want to save taxes and have a long investment horizon. If you want to invest and then take the money out after three years, then it is a dangerous category to be in. Secondly, we have always said that investors should tag a long term financial goal to these schemes. For example, you can invest in an ELSS for your retirement planning. If you have the intent to do this, the current market situation doesn’t matter. In fact, you will get units cheaper at this point.

Many investors are going around asking whether they should stop their ELSSs after th new tax regime comes to play. First of all, the new tax regime is a budget proposal and is not implemented yet. It is most probably be implemented in the next financial year. So till then, you should continue with your existing plan. Whether or not you should opt for the new tax regime and let go of deductions is something you need to research. Don’t take a call purely on the basis of lower tax brackets. Calculate whether you can let go of all the deductions in the long term. It is tedious process to shift to one tax regime and then come back to the old one.

Also Read

Are ELSS mutual funds losing their charm?

Are taxpayers ignoring ELSS mutual funds this financial year?

ELSS mutual funds to save taxes in 2020

Smart investors' guide to ELSS mutual funds

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