MF QueryBoard

My parent (father) recently passed away, and they had invested in an ELSS fund. The lock-in period for the investment isn't over yet. As the nominee, can I redeem the units before the lock-in period ends, or do I have to wait? - Pravin Tambe [EasyDNNnews:PaidContentStart]

ELSS funds offer tax benefits but come with a mandatory lock-in period of 3 years. This means you cannot redeem your investment for the first three years after you purchase units. 

In a difficult situation where the investor passes away before the lock-in period is complete, there's some relief for the nominee. While the standard 3-year lock-in applies in most situations, the rules recognize the unforeseen circumstances. Here, the nominee has the right to redeem the ELSS units after a reduced lock-in period of one year, counted from the original date the investor purchased the units. 

It's important to understand that the lock-in period is tied to the purchase date, not the date the units are transferred to the nominee. This special rule allows the nominee some access to the funds sooner than if the investor were alive. 

However, before redeeming, it's wise for the nominee to consider the tax implications. Redeeming ELSS units before the full 3-year lock-in might result in short-term capital gains, which are taxed at a higher rate compared to long-term gains. 

Consulting a financial advisor can be very helpful in understanding the tax situation and making informed decisions about redeeming the investment. 

Is allocating a majority of my portfolio to small and Mid-Cap funds a wise strategy for my goals? - Rahul Sharma 

While building a long-term investment strategy (over 10 years), equities often play a significant role. However, achieving your financial goals requires striking a careful balance between risk and reward. Allocating a large portion (more than half) of your portfolio solely to small and mid-cap funds might not be the most suitable approach. 

Diversification is key to managing risk. Consider flexi-cap funds that invest across large, mid, and Small-Cap stocks. These offer a balanced exposure, with Large-Cap companies typically providing stability and growth. A typical flexi-cap fund might allocate around 70 per cent to large-caps and 25-30 per cent to mid and small-caps. 

Remember, riskier assets like small and mid-cap companies, while offering the potential for higher returns, can be more volatile in the short term. Limiting their allocation in your portfolio helps manage overall risk. 

If you have a higher risk tolerance and are comfortable with potential short-term fluctuations, you could consider adding a separate mid or small-cap fund alongside a flexi-cap fund. This would give you slightly higher exposure to these growthoriented segments. 

Ultimately, small and mid-cap funds can be valuable additions to your portfolio, but they shouldn't be the dominant force. Carefully consider your risk tolerance and investment goals when deciding on the right allocation for you.

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