Jan 27, 2017 4 min read
8 Mistakes to Avoid When Making ELSS Investments At Year End
For those who are going to make ELSS investments at the year end, this blog contains some common mistakes which can be helpful for them to take an informed decision.
With the beginning of the tax-saving season, a lot of people are looking at investing in the equity-linked saving schemes (ELSS) to avail the equity-like returns along with the benefits of tax deduction under section 80C. However, there are several mistakes which are committed by the investors while making ELSS Mutual Fund investments.
We all know that ELSS can help us minimise the tax liability, but we are not sure that just investing a certain amount will ensure the results. Thus, it is important to know what are the things which we must not do while investing in the Equity-Linked Saving Scheme. Just have a look at them:
- Never Begin Late in Your Investments :- It is always recommended that in order to gain maximum profits one needs to make an early investment. It is always better to start the savings at an early stage through SIP in a tax-saving mutual fund. You must take the advice of investing right in time so that you never get late in implementing your tax saving plans. Many people make tax saving investment in the year end and thus either opt for a wrong way or a wrong instrument.
- Never Buy a New Fund Every Year:- It is a common strategy for the investors that they buy a new ELSS mutual fund every year to avail the tax exemptions under section 80C. This causes unnecessary and excessive diversification of your funds and results in a cumbersome portfolio which are hard to monitor. So, instead of going for a new ELSS investment every year, must opt for ELSS Funds SIP investment. This will provide you with the tax benefit along with capital appreciation over a long run.
- Never Make Judgement on Short-Term Basis:- Making a choice of ELSS scheme is essential, and one must not choose the plan on the basis of six-month or one-year returns. As the fund falls under the equity-asset class, the investment in the scheme is made for long-term. Thus, while making a choice, you must consider the returns for three- or five-year investment horizons. The scheme you are selecting must be a consistent performer for at least five years.
- Never Consider Returns Only for Taking Decision:- Everyone makes the investment to fetch returns, but they must not be the only parameter for making a selection. Rather, you must consider the nature and investment philosophy of the scheme before investing. You must verify that the fund matches your investing needs and preferences. If you have a conservative style of investing, then the scheme you select must also have the same investing criterion.
- Never Invest Just for Tax Savings:- ELSS funds offer you the tax benefit under section 80C and provide tax exemption up to Rs.1.5 lakh. Although the scheme offers the best benefit of tax savings, you must not invest in the same for a single purpose. ELSS are equity schemes which provide the benefit of capital appreciation in the long run. You can associate your long-term investment goals with these ELSS funds and yield the dual advantage of tax saving and capital growth.
- Never Redeem Just After Lock-In:- Once the lock-in of three years is over, people tend to redeem their capital immediately. But if the scheme you have chosen is performing well and yielding better returns, then there is no such need of redemption. You must allow your money to grow further and accumulate a considerable amount of wealth for your future.
- Never Switch Funds Every Three Years:- Many investors wait for the maturity of the lock-in period to switch their lump sum value in some other scheme. Rather, you should let your funds gain some extra benefits. If some other fund is offering better returns in comparison to your ELSS investment, it doesn’t mean it will yield the same returns forever. The market moves are powerful enough which can lead your investment to do well. So you must give time to your investments to enshrine a huge profit.
- Never Fall in the Dividend Trap:- Many a time, dividends lure the investors to opt for such schemes which offer a considerable amount of value on a regular basis. This leads to making a wrong decision, and thus investors fail to accumulate good returns on maturity. Hence, if you desire to build wealth with ELSS, you must opt for the growth options rather than going for dividend investment plans.
These eight common mistakes committed by the investors lead to failure in making the right decision of investment. You must a learn a lesson from them and keep them in mind while investing in ELSS.
Moreover, if you need assistance in this context for making a worthwhile tax-saving investment in ELSS funds, then you must avail our free of cost financial advisory services. MySIPonline is always ready to serve you better.
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