Question :
Instead of investing from April in ELSS, Every year I am investing in shares through out the year. Then at the end of the year, selling some of the stocks( Amount required for tax saving) and investing this amount into ELSS. Can anyone suggest if this is correct or its better to invest in the MF (ELSS) from the beginning ?
Answer :
It appears that you have saving habit, either in share or MF. Your ideas is better for your convenience which may not be applicable to every investor. He may not have enough money right from fresh financial year beginning from April.

At you buy shares from April till 11 months is not necessary that you will have assured return. In order to gain profit, the time of purchase must be when Sensex is at bear phase/down market. If you have purchased shares when Sensex is high. Then at verge of completion of 11 months, you wont be able to get profit, rather you will see your principle amount turn negative due to volatility in market. Your assumption that in span of 11 months, you will get substantial profit and the same will be invested in ELSS scheme. This is tentative calculation, but not assured calculation that you will certainly make profit within11 months.
I would like to suggest better option that after investing regularly for 11 months, you can still hold and continue investing on regular basis in share your for 2nd year and 3rd year also, in SIP by SIP fashsion. Take precaution i.e. invest less amount when market is high and more when market gets corrected. Invest in diversified fashion. i.e. Dont put all eggs in one basket. By doing so, you can see some shares are minus and some in plus within a span of 1 year and at completion of 3 years you will see the amount is quite appreciated, may be double. Please dont buy weak/penny shares. Always select good shares to buying. No matter the rates are high but they are cheap. For instance, buy RIL Rs 1084/-, ONGC Rs 1221/-, L&T Rs 1579/-. Those prices are high, but in actual they are cheap, because they have high potential for appreciation due to their performance, EPS, Book value, P/E ratio, perennial demand. These shares have bonus issue chances and value appreciation substantially as well. Whereas weak/penny shares dont appreciate for years together. Sometimes due to no demand, or heavy losses, debt, these shares get disappeared from market. As such, investor’s money would be totally lost for ever. Thus small value/ penny shares are not cheap but absurd/expensive. This psychological point must be kept in mind while investing in shares.
As far as possible, let us buy govt. PSU company’s shares. These shares do not come down heavily as compared to other shares during market crash. Hence you can buy share e.g. ONGC in small lot i.e. 10 shares @ 1221/- = Rs 12,210/- or if not, you can buy 5 shares. Minimum 1 share can also be bought.
Making money on share market is an art of Wisdom and Patience. i.e. Wisdom means selection of good/blue chip shares for buying (as stated in above para). Patience means – hold the share for at-least 3 years or more or till heavy market rally arrives. If we hold share for 10 years, then the share can fetch substantial return to make you rich. And if you stay invested for long time SIP by SIP, you will have a great financial asset, which can make possible for you to seek retirement before 5 years at your discretion.
After investing in shares next 6 months to 1 year is quite tension-prone because of turning the value negative, due to buying of shares at wrong time i.e. when Sensex is at very high level. So, the most fundamental thing depends upon when an investor takes entry into market. Hence it is prudent to buy shares when market is low. Or invest in small amount during high and more amount during low market. Once invested, hold the share for long term horizon i.e. for 3 years or more.
If you understand this point, then you need not go for ELSS. Before 3 year I bought ELSS “Reliance Taxsaver” @NAV Rs 14/-. Now at verge of completion of 3 years, the same is quoting NAV Rs 18/-. So, I don’t get much appreciation in ELSS at completion of 3 years on 31.3.2010. ELSS is also just like share. The same also depends upon share market up and down i.e. goes up slowly in up market, but goes down sharply when market is down. So, I have a bad experience in ELSS. We have to wait for very very long time for appreciation in ELSS or MFs. Whereas, shares are fairly appreciated within the same span of time as ELSS or MFs do.
It depends upon risk-taking appetite of an individual investors (There is no risk if hod shares on long term basis). However, in long run i.e. after 5 years, Equity shares of good companies beat ELSS, MFs, Bank FD, KVP, NSC modes and etc. if invested wisely in good shares.
Why I write all these so confidently, because I have completed my share holding tenure for more than 10 years. As such I have earned a huge amount of parallel asset, as if, I had earned like side business with Wisdom and Patience and passion of investment as well. I dont sell shares for mere making profit, but unless I have badly need of money in crisis to meet family need. Then, I dont see what is the current market value. Of course, I get good value with substantial profit due to holding tenure completed for more than 5 years. Preferably I sell the shares which dont give me substantial return despite my long years holding.
Investing in shares on regular basis and staying for long 5 year or 10 years or more, is itself a good financial planning, is itself a side business which fetch a huge amount of money at verge of retirement. With this there will be no tension in terms of money at retirement. Our share corpus will fetch us regular dividend income, bonus shares, right issue benefit, split up benefit etc. apart from value appreciation. You see, my ONGC share where I had invested 15 years ago in emplyee quota i.e. during 1995 with Rs 40K, now the market value is Rs 13L. and so are the other shares which have grown correspondingly with holding period. During crisis, I had mortaged the ONGC shares and meet the financial crisis. Subsequently I repaid the mortage loan in monthly installments for 3 years and got back my share asset from the loan bank. Thus automatically, my holding time of shares have increased and the share value got substantially appreciated. This is also good idea to raise money in crisis without selling shares, which are the FINANCIAL TRUMP CARDS OF LIFE.
Intially, I made lot of mistakes. I learned from mistakes as such mistakes got minimized. Thus I have hitherto completed 2 decade around in this field and as such, I always share my experiences with our people, though they differ with me, for I wont mind.
So, I must say “Share market is not a gambling table, but it is a sort of tree whose seed is now sown and see the growth into tree with passage of years”. This point I always wanted to emphasis upon our new investors, though many people do not agree with me on this point.
Regards
C.C.Hadke