When the markets are at an all-time high, is it wise to invest in ELSS?

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Section 80C provides a variety of investment alternatives for reducing income taxes. Each one has its own set of characteristics and benefits, ranging from PPF to 5-year bank fixed deposits to equity-linked savings schemes (ELSS). The lock-in term that comes with saving tax on your investment is something that all of them have in common.

ELSS is the only tax-deferred investment with a three-year lock-in term out of all the tax-deferred investments. So, if you deposit Rs 1 lakh in an ELSS at the current NAV (under Section 80C, you can invest a maximum of Rs 1.5 lakh each year), you can withdraw the amount at the current NAV after three years.

The simple answer to the above question is that equity prices will rise from current levels since equities tend to meander upwards over time. However, because equities are prone to volatility, there may be and will be ups and downs. Stock prices have never gone in a straight line, and dips, corrections, and market collapses are all part of the equities investment experience.

If the NAV of ELSS funds is lower than the buying price after the lock-in term ends, it’s advisable to wait another 1-2 years or even longer to redeem when the market recovers. Some people utilize ELSS to save for retirement or a long-term investment strategy. Every ELSS investment made now can be used as an annuity in the future.

The average annualized growth of ELSS funds over the last year, three years, and five years is roughly 54%, 14%, and 14.25%, respectively. The ELSS category has grown at a compounded annualized rate of roughly 15.5% during the last ten years.

When selecting an ELSS, don’t just consider their short-term success. Examine the fund’s performance over a longer period in comparison to its peers and its benchmark. It’s also a good idea to spread your ELSS assets among a couple of schemes, as not all funds have the same sector allocation. Your portfolio will be more diverse in terms of stocks and industries as a result of this.

It’s also worth noting how ELSS funds are distributed across market capitalization. Some may be highly engaged in large-cap stocks, while others may choose mid-cap stocks. Maintain a good mix to increase diversification.

Although the markets are at all-time highs, forecasting the future may be futile. The markets have mainly been profitable for long-term investors. Rather than trying to time the market, the most important factor is the amount of time invested in it. SIPs in ELSS funds can be started, but keep in mind that each installment will be locked in for three years from the date of investment. You can invest in equities funds in a flat payment or through a systematic investment plan (SIP), but your time horizon will be longer.

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