Is it a good idea to invest in ELSS during inflation?

Buying when the market has fallen and selling when it is a high is called “timing the market”. This is a difficult concept to practically follow, and is not really fruitful in the long run. What one needs to understand is that stock markets are always going to be volatile. Mutual funds (MFs), especially over the long run, help stabilise the ups and downs, and aid wealth creation. If you invest in MFs in a disciplined manner over a long investment period, especially through SIPs, then you can, most often than not, expect a sizable corpus at the end of your investment period. Over a long investment horizon (atleast over 5 years), SIPs in MFs tend to rationalize the market volatility to give you consistent returns. If you regularly invest in SIPs, when the market is high, you will receive lesser units, and more units when the market is low, thus leading to averaging of costs. So good sense will tell you that investing consistently in MFs is more important than timing the same.

Now, coming to ELSS, they have a lock-in period of three years. They are financial products that aid tax saving. They have the lowest lock-in period (i.e. 3 years) among all the investment instruments available under section 80C. Even though ELSS has a lock-in period of 3 years, and attracts Long term capital gains tax (LTCG) of 10% if profits exceed 1lakh, it is still a very viable option for creating wealth over the long term. ELSS funds can be structured in the form of SIPs by allocating a pre-determined amount to an ELSS every month. Such funds can also generate high returns due to their equity component. These returns can go into the range of 10 – 12% (post tax) over the long term. To answer your question, ELSS is a very good investment option provided you want to save tax and are willing to invest for the long term (7-10 years at the very least). Investing for just 4 years in ELSS is unlikely to be beneficial and the risk -return trade-off will not be in your favour. If you want to invest just for a period of 4 years, it is better to search for safer options like Fixed deposit and debt funds.