Should I continue the SIP in HDFC Tax Saver

The issue faced by you is a very common issue faced by many mutual fund investors. It is very difficult to predict which mutual fund will give the best returns in the future. This is because unlike individual stocks, equity mutual funds are essential a portfolio of stocks. The fund performance is less driven by the performance of individual stocks and more by the relative performance of sector allocations of the portfolio versus the benchmark index. The commonly used valuation metrics like P/E or P/B which can provide an indicator of future returns of an individual stock, is relatively less important for a mutual fund, because different sectors have different growth potentials. For example, a private bank stock with even a high P/E ratio can outperform an oil and gas stock with low P/E ratio, if the banking sector outperforms the oil and gas sector in the next 3 years.

Over the last 5 years, HDFC Tax Saver Fund (Growth Option) gave about 15% SIP returns. Over the same period quite a few ELSS funds have given SIP returns in excess of 20%, e.g. Axis Long Term Equity, Reliance Tax Saver, Birla Sun Life Tax Relief 96, BNP Paribas Long Term Equity, Franklin India Taxshield etc (please see top performing ELSS SIPs by going to our Mutual Fund Research section). As discussed, it is very difficult to predict which mutual funds will give the best returns in the future. Therefore, it is important to review your investment portfolio from time to time and take appropriate actions if necessary. ELSS investments have a lock in period of three years and therefore you cannot redeem your investment and reinvest before 3 years from the date of your investment. However, since you are investing through SIPs, you can always stop your SIPs and start it in an ELSS fund of your choice. As regards the investment that you have already made, if you want you can redeem the free units, in other words, the units purchased with your SIP installments which have completed 3 years (you can determine how many free units you have, by going through your latest mutual fund account statement sent by the AMC) and reinvest in an ELSS of your choice. For the balance (not free) units, you need to wait, until they complete three years, before you can redeem and reinvest