The importance of monitoring your ELSS holdings and making adjustments as needed
Investing in Equity Linked Saving Schemes (ELSS) is a great way to save tax and generate wealth over the long-term. ELSS funds offer a dual benefit of tax savings under Section 80C of the Income Tax Act and long-term capital appreciation. But simply investing in ELSS funds is not enough; you need to monitor your ELSS holdings regularly and make adjustments as needed to ensure that your investments are aligned with your financial goals and risk tolerance. In this blog post, we will discuss the importance of monitoring your ELSS holdings and making adjustments as needed.
What are ELSS funds?
ELSS funds are equity-oriented mutual funds that invest primarily in equities and equity-related instruments. As such, they are subject to market risks and volatility. The performance of ELSS funds can be affected by a variety of factors such as economic conditions, global events, and company-specific news. Therefore, it is important to monitor your ELSS holdings to ensure that they are performing in line with your expectations and goals.
Here are some reasons why monitoring your ELSS holdings is important
- Performance review: ELSS funds are known to deliver better returns than traditional tax-saving instruments like Public Provident Fund (PPF) and Fixed Deposits (FDs). However, the performance of ELSS funds can vary over time. Therefore, it is important to review the performance of your ELSS holdings periodically to ensure that they are meeting your expectations. If a particular fund is consistently underperforming, it may be time to consider switching to a different fund or making adjustments to your portfolio.
- Asset allocation: Asset allocation refers to the proportion of your investment portfolio allocated to different asset classes such as equity, debt fund, and gold. ELSS funds are equity-oriented funds, and as such, they carry a higher risk compared to debt and gold. Therefore, it is important to monitor your ELSS holdings to ensure that your asset allocation is in line with your risk tolerance and financial goals.
- Tax-saving deadline: ELSS funds offer tax benefits under Section 80C of the Income Tax Act. However, there is a deadline to invest in ELSS funds to claim the tax benefit. The deadline for investing in ELSS funds is March 31st of every financial year. Therefore, it is important to monitor your ELSS holdings to ensure that you invest before the deadline to claim the tax benefit.
- Fund manager changes: The performance of ELSS funds can be influenced by the fund manager’s investment strategy and experience. Therefore, if there is a change in the fund manager of your ELSS holdings, it is important to monitor the performance of the fund closely to ensure that it is in line with your expectations and goals.
Once you have reviewed your ELSS holdings, you may need to make adjustments to your portfolio to ensure that it is aligned with your financial goals and risk tolerance. Here are some adjustments that you may need to make:
Rebalance your portfolio: Rebalancing your portfolio refers to adjusting the proportion of your investments in different asset classes to maintain your desired asset allocation. If your ELSS holdings have performed well and have increased in value, you may need to rebalance your portfolio to maintain your desired asset allocation.
Switch funds: If your ELSS holdings are consistently underperforming or if there is a change in the fund manager, you may need to consider switching to a different fund. Before switching funds, ensure that you have thoroughly researched the new fund and that it is aligned with your financial goals and risk tolerance.
Increase or decrease investments: Depending on your financial goals and risk tolerance, you may need to increase or decrease your investments in ELSS funds. For example, if you have a higher risk tolerance and a longer investment horizon, you may consider increasing your investments in ELSS funds to generate higher