Q1. I’m a 35 yo fashion designer. My ELSS fund’s lock-in period ends next month. Should I redeem it or continue investing? It has made decent returns. Can I redeem the whole amount at once?
Varsha Upadhyay, Ahmedabad
Yes, you can redeem your ELSS investments either partially or in full after the completion of the 3-year lock-in period. However, the withdrawal amount depends on your investment mode.
You can only withdraw the whole amount if you had made a lump sum investment in your ELSS Fund. In the case of lump-sum investments, all your units are allotted on the same day so the lock-in period of units remains the same.
But if you have set up a SIP, know that each deduction is treated as a new investment. And hence, the 3 years are calculated from the day units are allotted for that month’s SIP.
Now, it’s up to you whether you want to keep investing in the same fund or reinvest the amount in some other fund. If the fund has performed well and also suits your risk appetite, you might as well continue investing in the same fund. However, a fresh three-year lock-in would apply to it at the time of reinvesting. Also, long-term capital gains tax would be applicable for capital gains exceeding ₹1 lakh in a financial year.
Another factor to consider while making this decision is your investment goal. Say you want to create long-term wealth with equity investments. In that case, redeeming the amount only within three years might not give you the high returns as the same fund on the investment horizon of 5-10 years can do.
If you are not happy with the fund’s performance, you can also explore other equity mutual funds that promise better returns but ensure that you have the risk appetite it requires.
Remember that ELSS is not just a tax-saving tool but also holds a great potential of providing higher returns in the long run. Staying invested in the long term will fetch you better returns.
Q2. I'm a 45 yo entrepreneur from Jaipur. I took a house loan 7 years back to buy a house and have almost paid off 40% of it already. I need about 5 lakhs and was thinking of taking a personal loan. A friend suggested that I go for a top-up loan instead. Do you think is it a better option? If yes, how do I know I am eligible for it?
Prakash Jaiswal, Jaipur
Anyone in need of funds, and who has an existing loan can avail of a top-up loan. You can use the fund for any reason, right from renovating the house, and child education to medical expenses. A personal loan, on the other hand, can be secured by anyone, you don’t have to have an existing loan or security.
Although the top-up loan is not easy to get sanctioned unless you have a good credit score and payment history. The procedure for a top-up loan can be less of a hassle compared to personal loans as the lender already has the necessary documents.
However, you will be charged a processing fee which can differ from lender to lender. You can also easily apply for a top-up loan online, personal loans on the hand can be time-consuming.
In your case, top-up loans can be preferred for multiple reasons. To start with, the lower interest rate structure and flexible loan tenure definitely make it a more attractive option. You are only charged 0.5-1% over your existing loan interest rates as your house works as collateral. However, personal loan interest rates tend to be on the higher side as it is an unsecured loan.
The maximum tenure of a personal loan is up to 5 years, but top-up loans can allow maximum tenure of up to 30 years or the remaining duration of your current loan. This also gives you the option of lower EMIs.
You can prefer a top-up loan however compare the rates and do a thorough analysis before you go ahead.
Note: This story is for informational purposes. Please speak to a financial advisor for detailed solutions to your questions.
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