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Do not Invest a lumpsum in ELSS Funds

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Mutual fund advisors are getting ready for 'difficult December.' Planners dub December a difficult month because they get countless requests for last-minute tax planning during the month. This year they have a unique problem: many new mutual fund investors are hellbent on investing a lumpsum in Equity Linked Savings Scheme (ELSS) to save taxes this year. Advisors say this is risky as the market is currently hovering around its all-time high, but the new investors are not in a mood to listen.


Most investors who come to invest in ELSSs at this point stress on a lumpsum investment because they have to show the investment proof by January. This is not a good strategy because you catch the market at a particular point. She adds that investing a lumpsum in any equity scheme is risky. ELSS is nothing but an equity scheme. The risk in investing a lumpsum at this point remains high

And mutual fund advisors are extra cautious now because the markets are in an uncertain terrain. With the broad indices trading at high levels and at unreasonable valuations, market pundits believe that there might be a correction in the short term. "The outlook of the markets is not bad, but a lumpsum at such high levels in not feasible. That is why we ask the investors to stagger their investment in ELSS



ELSSs are equity schemes that invest most of their corpus in stocks. That is why experts ask investors to stagger their investments in these schemes and hold on to their investments for a long period to weather the risk and volatility in the stock market. Most advisors recommend staggering the investments over the whole financial year as it will help investors to average their purchase cost. It also helps them to invest in a disciplined manner irrespective of the market conditions


Some mutual fund advisors believe that investors can go for a lumpsum investment also, provided that they have a stomach to bear volatility. If you are not one of those investors who just wait for the lock-in to get over or who checks the returns on a daily basis, you can go for a lumpsum also. ELSSs come with a mandatory lock-in period of three years, investors can anyway not take any bad decisions. But make sure you have an investment horizon of more than seven years and a good risk-appetite


 

 

 


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