Ask Morningstar: Should I exit my ELSS after 3 years?

By Himanshu Srivastava | Aug 09, 2022

My lock-in period of DSP Tax Saver is completed. It is around Rs 1.7 lakh. Should I exit? I do not have any immediate requirement for the money. What must I consider before I make an exit decision?

Investments in tax saving funds are no different from investments in funds from any other category, and they should also form a part of an overall financial planning process.

Hence, although a tax-saving fund has a lock-in period of three years and you have the option to redeem your investments after that, it’s not necessary that you must exercise that option.  The decision to exit a fund should be well thought of after considering various factors.

Has the fund failed to deliver in line with expectations over a long period of time? Does it have good future prospects? Is there a change in the strategy? Is there a change in the fund management team? Are fundamental changes in the fund making it inapt in your portfolio? Has your risk profile changed and the fund is no more in line with your risk appetite? Has the fund met the goal for which you invested? Has the fund served the purpose that it was supposed to serve in the portfolio?

Even if you invested in an ad-hoc way just to save tax, without any investment objective assigned to it or without a financial plan, you can still use this investment and align it with your goals. Then you can weave your future investments around it.

DSP Tax Saver Fund

This fund is a reasonably good fund. It is managed by Rohit Singhania who is a very experienced manager. The investment style with which this fund is managed is slightly unique. It is managed with a free-flowing investment approach without any bias towards in market segments, sector or investment style. The manager is free to explore the investment opportunity across the wide range of spectrum. Capitalising on short-term investment opportunity is also an integral part of the strategy and the manager use this to generate additional returns for the fund. This is a rather aggressive investment style and the biggest risk here is the execution risk.

This investment approach is manager-centric, and its success relies on his executional capabilities. Hence this investment style may not appeal to all. However, Rohit has been managing this fund for over seven years now and is completely in sync with his investment style. This approach comes inherently to him, and he has executed it well.

While the fund has witnessed short-term underperformances, over the long-term it has delivered pleasing results. Over three- and five-year period, the fund’s direct share class has delivered a top quartile performance thus outperforming the category peers as well as S&P BSE 200 India TR index by a huge margin.

The investment approach plied here is inclined slightly towards riskier side. If you cannot withstand the risks associated with this style of investing, then you can look for other options. But if you have the risk appetite, then there is not needed to exit from this investment especially since you don’t have any immediate requirement of money.

Registered readers can post their queries by accessing the Ask Morningstar tab. Our team will answer SELECT queries relating to mutual funds, portfolio planning and personal finance. While we provide broad guidelines, we suggest you consult a financial adviser before making investment decisions.


Articles authored by HIMANSHU SRIVASTAVA

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Arun Serdeshpande
Sep 21 2022 01:12 PM
What should be a portfolio for a retiree with 1.2 cr Capital, current requirement of 50000
Pm, with an objective of about 4% rise in the capital on year on year basis considering the inflation trend in Indian economy.?

Please advise a mix of Fixed income options, hybrid mf and equity options.
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