Investing in ELSS Funds: Redeem or Stay Invested?

Abstract

With the evolution of capital market, investors prefer investing in mutual funds as they are relatively less risky compared to equity share investments. ELSS is an excellent avenue for regular small investments to earn attractive return over long period and it is the only category of mutual fund which give tax benefit under section 80C of Income Tax Act 1961. The study evaluates the performance of ELSS funds in lock-in period and open-ended ELSS funds after lock-in period using risk and return measures. Multiple measures used are 3 years Average return (%), Standard Deviation (%), Sharpe Ratio, Sortino Ratio, Beta, Alpha, R Square, Expense Ratio, Net Assets (Cr), Equity Asset (%), Debt Asset (%) and Cash and cash equivalent asset (%). The duration of the study was three years, from 16 June 2021 to 15 June 2024. The study incorporates 119 Equity ELSS funds of which 84 were open ended and 35 were in Lock-in period. The study reported that Funds in Lock-in period have recorded more returns than the ELSS open ended funds. Also, the funds in Lock-in period have recorded more variance in returns than the ELSS open ended funds which explain their higher return. Hence investors can redeem the ELSS units and reinvest the amount in another ELSS fund once lock-in period is over. The schemes which fall under growth investment style and medium capitalization are a good choice.