Dhaval Kapadia, Director, Portfolio Specialist, Morningstar Investment Adviser (India) answers queries in The Financial Express, from where the below has been taken.
I have lost money in ELSS invested last year. For tax-saving this year, should I still invest in ELSS or wait for next year for the market to recover?
- Deepak Shetty
Besides tax planning, other important aspects about investing in ELSS that you should consider are your risk appetite and the investment horizon.
ELSS funds invest in equities, which tend to generate attractive returns over the longer term (3 to 5 years and above) but these returns can fluctuate over the short term.
For example, ELSS funds have generated annualised returns of 17% and 12% over the last 3 years and 5 years respectively, on an average.
But this has been accompanied by a few periods of negative returns. Historically, the probability of generating negative returns from ELSS funds has been 6.2%, 0.83% and 0% over 3 year, 5 year and 7-year holding periods respectively over the last 15 years.
In other words, out of a total of 145 periods of 3 years each, over the last 15 years there were 9 periods in which the category on an average generated a negative return. As the investment horizon increased to 5 years, the number of periods with negative returns reduced to 1 out of 121 periods.
Hence, one should have at least a moderate risk appetite while considering investments into any equity fund including equity linked savings schemes, or ELSSs.
