Is Investing in AB Tax Relief 96 ELSS Fund Sensible During Market Downturns?
Investing during a volatile market can be challenging. A reader has recently inquired about the viability of continuing their investment in the AB Tax Relief 96 ELSS (Equity Linked Savings Scheme) fund, given that it is currently showing negative returns. Let's explore the pros and cons of this fund during market downturns and how one can navigate such times effectively.
Understanding the AB Tax Relief 96 ELSS Fund
AB Tax Relief 96 is a popular ELSS fund provided by ABSL Mutual Fund. ELSS funds are tax-saving options that offer investors a period of three years to claim tax deductions under Section 80C of the Income Tax Act. Since AB Tax Relief 96 is an equity-based fund, it may experience fluctuations due to market conditions. During a market downturn, the fund's performance can reflect the overall economic uncertainty and volatility.
Why Is the AB Tax Relief 96 Showing Negative Returns?
The current negative returns experienced by the AB Tax Relief 96 fund can be attributed to the ongoing market downturn. Economic factors like the current pandemic have a significant impact on global stock markets. Many mutual funds temporarily experience negative returns during such economic recessions due to their reliance on equity investments. In this case, the fund's performance is a reflection of broader market trends.
When Should You Redeem Your Investment?
If you are feeling uncertain about the fund's performance and believe that the returns are not sufficient for your financial goals, you may consider redeeming your investment. However, it is crucial to consider whether you have a genuine need for the funds or if you are redeeming out of fear or panic. In most scenarios, experts recommend staying invested during market downturns and waiting for the market to recover.
Why Stay Invested?
Markets tend to recover over time, and the AB Tax Relief 96 fund is no exception. Once the market rebounds, the fund can generate positive returns. The principle of investing, “buy low, sell high,” emphasizes that buying during market downturns can be advantageous. Additionally, redeeming during a downturn can result in a permanent loss as you convert a temporary market fluctuation into a permanent investment loss.
Benefits of Long-Term Investment in AB Tax Relief 96
If you are a long-term investor and you regularly invest in the fund through a Systematic Investment Plan (SIP), the negative returns in the short term do not detract from the overall potential for positive long-term gains. The fund's performance over the past five years indicates that it has consistently performed better than its benchmark, SP BSE 200 TRI. Although there have been short-term fluctuations, the fund has a solid track record for sustainable growth.
Should You Consider Other Options?
Given the fund's performance, it makes sense to continue investing in AB Tax Relief 96, especially for its tax-saving benefits. However, investors who are looking for diversification can consider Axis Long-Term Equity Fund. This fund offers a different risk profile and can help in spreading investment risks.
In conclusion, while the AB Tax Relief 96 ELSS fund may currently show negative returns, it can be a valuable long-term investment. Staying invested during market downturns and considering diversification can lead to better financial outcomes.
Note: For more personalized advice, consult a financial advisor to align your investments with your financial goals and risk tolerance.