Home >Money >Personal Finance >Shift to debt from equity as your goal nears to protect the investment value

I have investments in the following equity-linked saving schemes (ELSS): An SIP of 2,000 each in Aditya Birla Sun Life Tax Relief 96 and IDFC Tax Advantage. Also, 3,000 SIP each in Invesco India Tax Plan and Axis Long Term Equity. All of these are direct investments.

As I started my home loan this year, my ELSS investments became redundant for tax savings. Though I want to continue with mutual funds for my long-term goals spanning 10-20 years, I don’t want to continue with ELSS as they have a three-year lock-in. What are my options? Should I withdraw current investments and move to diversified equity funds or should I stop contribution to ELSS, let it grow, and start fresh with a diversified equity fund?

—Narayanan Janakiraman

You have four ELSSs, which were never required. One was good enough, but because you did not have any other equity investment, at best two ELSSs were enough. Now you don’t need ELSS for tax savings, and hence, you need to compare ELSS like any other equity scheme and invest on merit and not as an ELSS investment. And a three-year lock in should not be a determent as any equity investment is ideally invested for not less than five years. This holds true for ELSS also, however, it is typical a three-year investment, as its lock-in gets completed, but here also the investment horizon should be taken at par with any other equity investment, and hence, five years or more. So, don’t invest in equity with a three-year investment horizon.

Also, your goal completion should not be timed with equity investment—you need to move out of equity to debt as you come closer to your goal to protect capital value.

Within your ELSS investments, two of the four, i.e. Axis Long term Advantage and Invesco Tax Plan are as good as or even better than any other well-performing diversified equity fund. And even Birla has been a good performer. But to diversify portfolio, you can consider stopping both the other ELSS investments, i.e. Birla and IDFC and consider moving their free long-term portfolios to large-cap-based portfolios—Axis Bluechip and Mirae Asset Emerging Bluechip.

Surya Bhatia is managing partner of Asset Managers. Queries and views at

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