There is a belief among all the financial planners and investment experts that investments in equity funds should be done for a long-term horizon. For every investor, the meaning of long-term period differs, but generally, it is believed that it must be at least for seven years or more, as longer the period of holding; higher shall be the wealth. Henceforth, investors having short-term investment goals must avoid investing in the equity schemes due to its nature of yielding returns over a long duration.

ELSS(Equity Linked Saving Scheme) is a tool which provides tax benefits under the Indian tax regime, and generate long-term capital appreciation for the investors. The returns offered by ELSS funds are also tax free which gives ease to the investors. It is one of the most favourable investment schemes to achieve tax exemption under section 80C of Income Tax Act. But, investors need to understand that ELSS is not only a tax-saving solution but an investment strategy. Tax management is an added advantage of this plan which facilitates tax savings.

We make decisions regarding the selection of the ELSS Funds for claiming tax relief on the liability. But, the primary motive of every ELSS investment must be achieving future financial objectives or creating wealth over a long-term period for the purpose of retirement or some other goal; and tax planning through the investment should be an incidental advantage.

Investments in the best ELSS schemes can be made every year in order to achieve the tax exemption up to Rs. 1.5lac, and they must be detached with any of the plan, viz.: buying a dream home, higher education of children, children’s marriage or retirement.
Many investors encash their ELSS investment immediately when it completes three years of lock-in. They even use the same redemption amount to make a fresh ELSS investment to claim tax exemptions in that year. There is a belief among the investors that the performance of the funds in ELSS schemes falls after completion of three years and the future financial goals are jeopardised. But this is certainly wrong.

Henceforth, once the lock-in period of three years expires, instead of redeeming the funds, the investors must evaluate the track record of the strategy and in the case of its low performance as against the set benchmark, the investment amount should be shifted to some other open-ended equity fund for better returns in the future. Being a division of the equity assets, the ELSS mutual funds perform far better in the long run. Hence, they must be given a chance of producing better returns to achieve the financial goals.

In the case of a time when there comes the need to accomplish some financial objectives, the Equity Linked Saving Scheme acts as a blessing in disguise. Thus, one must be a smart investor and should act as per the situation to avail the advantages of the best opportunities in the market. Investing in the best ELSS schemes shall help one grow wealth in the future along with tax savings, hence let it produce the returns and grow your money into wealth.

By reading this article, you would be able to conclude why one should not redeem the funds from ELSS schemes even after completion of the three years lock-in period.

Author's Bio: 

Dishika is a mutual fund investment planner, who has keen experience in the fields of finance and tax management. She is working with My SIP Online and providing the best services to a large number of investors.