ELSS: Invest with a long-term perspective
Equity linked savings schemes, or ELSS, are actively managed diversified equity funds. As with any equity fund, it is recommended that you have a long-term perspective in mind, preferably five years at the minimum.
Equity, as an asset class, always carries with it the risk of loss of capital. But this risk is pronounced when you invest with a very short-term perspective in mind. For instance, if we look at the 1-year return, the category average is -10%, with Reliance Tax Saver delivering a gut-wrenching -17%. However, it all changes when you stay in for the long haul. The very same fund delivered annualized returns of 22.55% over 3 years, 16% over 5 years and 12.29% over 10 years.
Below are the average category annualized returns over various years.
- 15 years: 18.57%
- 10 years: 9.53%
- 5 years: 11.82%
- 3 years: 16.92%
- 1 year: -10%
So even when the 3-year lock-in period expires, you need not exit your investment. If the market dynamic favours you and you need the money, then do so. But otherwise, hold on till the market picks up. Remember, there is no pressing need for redemption once you complete the mandatory lock-in period.