Mutual Fund : Should You Sell your ELSS After 3 Years?  

Shriya recently read the book and had this query on ELSS Mutual funds.

I came across your book : Grownups are just kids with money and found your inputs useful. I have one ELSS with DSP Black rock. Since ELSS has locking period of 3 years .what should one do after the 3 years are completed ?

 

The simple answer; do nothing.

There is no reason to liquidate an ELSS mutual fund, just because it’s out of the 3 year lock-in period. The point being, that selling off or liquidating any of your investments should be based on your goals.

 

After the 3-year lock-in, nothing about the fund changes fundamentally. The fund manager still runs the fund the same way as he/she did earlier. So if the fund has continued to perform well, you can stay invested and let the money grow. Equities work best when you stay invested for the long term. And history has proven that the longer you stay invested, the better. To see what happened to 1 Lakh of investment, when it was left untouched for 20 years, despite the stock market witnessing several minor and at least one major crash, see this post here.

So, unless you need the money to fund an immediate goal, stay invested. And if your need is say three years down the line, you are better off moving it to a debt mutual fund or an FD, depending on your appetite for risk. Remember though, that debt mutual funds and debt products like FDs are a good way to protect your money, and not necessarily to grow it. So you’ll need to strike a balance, depending on how much of it you can let grow, and how much you need to protect.

 

This answer applies to any equity mutual fund investments; not just to ELSS funds. Always invest/liquidate based on needs and goals.

 

You can see the list of top mutual funds, based on their five year returns, on Value Research’s website here.