Can I stop investing in ELSS if it is generating very poor returns?

—Name withheld on request

You can stop your SIP in the ELSS fund that is not performing to your satisfaction. And you can also start a new SIP or make lump sum investment in another ELSS fund, including the other one you are holding. The only thing that is subject to lock-in would be the units that you already have in both the ELSS funds (the units created by your completed SIP instalments). 

Every SIP instalment would create ownership of a fresh number of units for you in ELSS funds, and these units are subject to a three-year lock-in from each of these SIP dates. This, however, does not prevent you from stopping the SIP  or starting a new one.

I am 35 years old and have monthly SIPs of ₹40,000 in 10 funds. My current corpus is ₹40 lakh and the funds are Axis Flexi Cap, Axis Liquid, Canara Robeco Flexi Cap, Canara Robeco Liquid, DSP Flexi Cap, DSP Liquidity, Edelweiss Liquid, Kotak Liquid, Mirae Asset Large Cap, PGIM India Flexi Cap (regular, growth plans for most funds). Please review my investments.

—Name withheld on request

You are presently investing 50% of your SIP in liquid funds and the other 50% in equity funds, most of which are flex-cap funds. We can make two observations about this portfolio given this limited data and the information about your age. One is that this asset allocation would be appropriate for you if you are either a conservative investor or investing for a time frame of 5-7 years. 

A person of your age can afford to have a more aggressive asset allocation if investing with a long-time horizon (greater than 7 years). You have zeroed in on one category of funds both on the debt side and the equity side. The pick of liquid funds on the debt side is relatively fine. However, choosing to go predominantly with flexi cap funds on the equity side is an overallocation to one category of funds. This category gives maximum flexibility to the fund manager in terms of allocating money to the different market segments and are typically overweight on the large-cap segment.

Alternately, you may want to go with an index fund for the large cap segment and a mid or small cap fund for the more aggressive segment of the market. Additionally, I also see that most of your investments are in regular plans of mutual funds. Unless you are using the services of a distributor to provide counsel and support, you will do better to go with direct funds and save costs.

Srikanth Meenakshi is co-founder at PrimeInvestor.