There has been a bloodbath in the stock market chiefly due to the Covid-19 pandemic. In such a scenario, what should investors do? Should they continue with their ELSS (equity-linked savings scheme) investments in the current market scenario? Read on to found out.
Here’s what the experts have to say:
Given that the Covid-19 pandemic is a health scare, the panic in the stock market is quite expected. Whether it is wealth or health, trust the professionals and experts. Make sure that you do not buy or sell in panic. Also, continue with your SIPs (systematic investment plan). Believe in the long term nature of the markets and your long-term asset allocation will take care of your wealth needs.
Would ELSS tax saving mutual funds lose their sheen with the introduction of the new tax regime by the finance minister?
ELSS tax saving funds could lose its sheen, but the capital could probably flow into equities. This is because people will still have that disposable income, and they’d be looking for good investment options. Under the old tax regime, an investor was eligible for ELSS tax exemption of up to Rs 1.5 lac under Section 80C of the IT Act, 1961. If the new tax regime makes more sense for some for you, mutual fund experts advice investors to set up the capital meant for tax-saving investments towards equity mutual funds which will help to create long-term wealth.
Do not link your mutual fund investments to the prevalent scenario in the market. As an investor, you should always ensure that your investments are aligned with your financial goals, risk profile, and investment horizon. Remember that you are selecting an equity fund scheme as you have a high-risk appetite and long-term investment horizon. Experts often frown upon the idea of 5 years being termed as long term investment. In the current situation, an investor should always have an investment horizon of at least 7 years if they are looking to invest in equity funds.
The whole idea behind investing in equity funds through SIP (systematic investment plan) is to continue with the mutual fund investments in a bad market and accumulate more units. This concept is known as rupee cost averaging and is one of the many benefits of investing in mutual funds via SIP investment. Under this concept, an investor ends up buying more units of a mutual fund scheme when the markets are low and lesser units when the markets are high. This averages out the total cost of the mutual fund scheme.
To conclude, if you have a long investment prospect of at least 7 years and the required risk profile, you may consider continuing with your investments in ELSS tax saving funds. However, if you do not have the required investment horizon and risk profile, you might consider stopping your investments in equity funds, including tax saving mutual funds, i.e. ELSS mutual funds. Happy investing!