ELSS investment post-lock-in period: Should you hold or exit
3 min read
Equity linked savings scheme (ELSS) is a popular tax-saving investment option among investors. Not only does it help you save on taxes under Section 80C, but it also gives you the opportunity to grow your wealth with exposure to the stock market.
ELSS funds come with a mandatory 3-year lock-in period, after which you can either hold or exit your investment. But once the lock-in period ends, what should you do with your ELSS investments? Should you hold on to your units for further growth or exit to take profits?
Let’s take a look some key points you need to consider when making this decision.
- Evaluate the fund’s performance
The first thing you should check is the performance of the ELSS fund. You can use an ELSS calculator to analyse how much your investment has grown over the three-year period. Compare the returns with the fund’s benchmark and similar funds in the market.
If the fund has consistently outperformed the benchmark and the returns are satisfactory, holding your investment could be a good option for long-term wealth creation. However, if the returns are underwhelming or the fund has not met your expectations, it may be time to exit.
- Review your financial goals
Your decision to hold or exit should be closely linked to your financial goals. If your primary goal was tax saving and you have already achieved your target, it might make sense to exit.
But if you have a long-term wealth-building objective and you are in no rush to access the funds, holding on to your ELSS investment can help you benefit from compounding returns. It is important to reassess your financial goals and timeline before making any decision.
- Consider market conditions
While the lock-in period is over, market conditions still play a crucial role in deciding whether to exit or hold your ELSS units. If the market is experiencing a downturn or if you are expecting better opportunities elsewhere, it might be prudent to exit.
On the other hand, if the market outlook is strong, holding your ELSS investment could prove rewarding. Keep an eye on the market trends and how they align with your financial plans.
- Tax implications
After the lock-in period, the tax treatment of your ELSS units is important to understand. ELSS returns are subject to long-term capital gains (LTCG) tax of 12.5% on profits above ₹1.25 lakh in a financial year.
If you have made significant gains, it might be worth considering if paying the LTCG tax is a better option than holding for further appreciation. If the tax impact is manageable and the fund’s potential for growth remains high, staying invested could be more beneficial.
- Diversification of portfolio
Post-lock-in, your decision should also factor in the overall diversification of your portfolio. If your ELSS investment constitutes a large portion of your portfolio, exiting some units might help balance the risk.
Alternatively, if your portfolio is lacking in equity exposure, holding onto your ELSS fund might be a strategic decision to maintain your growth potential. Rebalancing your portfolio ensures that your risk is spread across different asset classes.
Ending note
Whether to hold or exit your ELSS investment after the lock-in period is a personal decision that depends on your financial goals, market conditions, and the fund’s performance.
While exiting may seem appealing if you have made good returns, holding onto the investment could allow you to benefit from further growth. It is always a good idea to make decisions based on careful analysis and your financial priorities.
