Redemption of Regular ELSS

In initial days I bought some regular ELSS funds. And those are now more than 3 years old and ready for redemption.

Is it good idea to redeem them now and re-invest in my current direct ELSS fund ? Or I am thinking as I am mostly done with my 80C in my current FY, would it be a better idea to put the amount in small cap rather than ELSS ?

What about the tax implication ?

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Regular or direct, it does not matter as the LTCG will be taxed as per your slab.

For investing, look at the structure of your ELSS fund, some funds are large cap oriented, some may invest in mid cap more, so if you are fine with the portfolio of your funds, and the returns, you can go for ELSS. Also, small cap funds are inherently volatile, so don’t look at them just from returns perspective, consider their volatility too.


If you are happy with that ELSS fund, dont redeem.

If you have a plan of redeem, invest in a NIFTY 100 index fund, don’t go for small caps, they are very volatile.

Reg tax implication, if the returns is less than 1 Lakh, you no need to pay any long term capital gains tax.

If returns is more than 1 lakh redeem it across 2 financial years to avoid tax

What if the market falls next year, there is a chance the profit will be reduced or gone entirely. Returns are more important than tax, while investing in equity, tax should be considered in the plan but our focus should be on making profit.

If the underlying stocks are good, stick with that.
Otherwise redeem it and invest in a NIFTY 50 index fund for long term.

Fund managers sell the stocks for various reasons, or change the allocations as they have limits, that should never be the criteria.

Think about the case if market moves up and end up in doubling the profit?
Instead of paying tax (assume his tax slab is 30%), he can wait and see. Probability of market going down 30% is very less.

It is not about market going down by 30% or 20%, it is about how much of profit one is in and that profit becoming less. Also, depending upon the nature of the fund this happens, if the ELSS is mid cap oriented, and if mid caps start falling, this may effect the fund too. Also, we have to stay put if we are in loss and cannot afford to take that loss, so why stay in ELSS even after the lock in is over and we are in profit. Of course, these all depend on one’s situation. I am just saying that there are different possibilities.

Psychologically speaking, what would you choose, lesser profit (if the market moves up after redemption), or taking loss (if the market falls).

If you have plan of redeem, make it across 2 financial years. Don’t think about profits. Next year, at some time market will go up, you can redeem that time.

We dont need to worry about 30% tax etc in this case, I feel. Long term capital gains attract 10% tax only, that too above 1 lakh. Hence it is only the requirement of money at the given point should be the consideration while redeeming ELSS. If there is no immediate need but only to take away the profit and invest the amount in some other fund, then the pros and cons of that, like minimum holding of one year to attract LTCG instead of no time limit for the existing ELSS should be taken into account.

Thanks all for your valuable suggestions. Due to all these suggestions I have done some R&D on Index Funds and I am pretty much convinced to start one.