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

    Synopsis

    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.

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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?
    Things You should consider
    • Annualized Return
      for 3 year: -1.03%
    • Suggested Investment
      Horizon: >3 years
    • Time taken to double
      money: N.A
    Things You should consider
    • Annualized Return
      for 3 year: -1.39%
    • Suggested Investment
      Horizon: >3 years
    • Time taken to double
      money: N.A

    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.

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    3 Comments on this Story

    Yash Pal157 days ago
    The F M has made the intent of Govt to phase out all exemptions, clear. It is just a matte of time. 2 -3 yrs max.
    What the Govt forgets is that there is no pension, health insurance, life insurance etc for majority of people. Exemptions were a very good way to force people to subscribe to these schemes and the savings were available for long term projects.The present dispensation cannot see beyond their nose. Long term funds will be difficult to come by now.
    Vilas Save159 days ago
    The way the wind is blowing, the goverment will force everyone to the new tax slabs sans exemptions in 2-3 years.The old slabs and excempions/ rebates such as 80 C and D will be frozen at current levels even if the inflation rises to 10- 15%.Be careful to save for retirement as there will be no social security provided other than the farmers and weaker sections.Spend only on essentials and save for major life goals.Due to reservation policy , assume your children will have to get educated abroad and also find employment there.
    jkvr setty160 days ago
    The advise says "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."
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