Should I stop my SIPs in ELSS mutual funds?

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I am 30 years old and I am investing in the following mutual funds via SIPs since the last 2.5 years. My goal was wealth creation at that time.
ABSL Tax Relief 96 Fund: Rs 3,000
ABSL Equity Fund (growth): Rs 4,000
Mirae Asset Emerging Bluechip Fund (growth): Rs 4,000
SBI Magnum Taxgain Fund (growth): Rs 2,000
HDFC Tax Saver Fund (growth): Rs 3,000

I have taken Rs 40 lakh home loan. I wish to pay it back within 16 years. I can go with long term appetite/duration for SIPs. Should I continue with above all or should I stop ELSS now? I shall go with wealth creation funds so I can bear with loan burden & make some pre-payment also. My long-term goals are retirement planning and daughter's education (she is one year old). Please suggest.
-- Sameer Amle

Vishal Dhawan, Founder, Plan Ahead Wealth Management, responds:

HDFC Taxsaver-Growth ★★★★
  • -2.26%Annualized Return for 3 year
  • >3 years Suggested Investment Horizon
  • 3.3 YearsTime taken to double money
  • 0.64%Annualized Return for 3 year
  • >3 years Suggested Investment Horizon
  • N.ATime taken to double money
We are presuming that ELSS funds were added into your portfolio after ascertaining the tax liability. Based on your current SIPs, you are saving Rs 8,000 per month (that is, Rs 96,000 per year) through three tax saver schemes. Both investment in ELSS and principal repayment of home loan qualify for tax deduction under section 80C.

Based on your home loan of Rs 40 lakh, the principal repayment would be in the range of Rs 1.2 lakh for the next 12 months, assuming a 8.5% interest, which is higher than your current investments in the ELSS. Therefore, there is no need for additional ELSS investments at this point.

We would suggest you replace the SIPs in ELSS funds to the extent that you can manage the investments and loan EMIs simultaneously, with an international fund and an index fund. Over a long period of time, a good quality mutual fund portfolio could outperform the interest cost of the loan, though there may be years along the way that the home loan cost will be higher than the rate of return from the long-term wealth creation portfolio, as equity market returns tend to be lumpy by their very nature.

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