Mistakes That You Should Avoid While Investing in ELSS Funds
The season of saving taxes has begun, and individuals are exploring the options through which they can save maximum amount on their total income tax. Now-a-days investors are well aware of the best tax saving option, i.e., ELSS funds, and most of them have already planned their tax saving route through the best ELSS fund investments while some are waiting to get last minute blast on their income.
However, nearly all the investors are using this way of investing as they know that it can help them avail the benefits of up to Rs. 1.5 lakh on their total taxable income under section 80C of the Income Tax Act of India, 1961. Moreover, it has the least lock-in period of just 3 years which is much longer in the case of other tax saving instruments.
Have You Parked Your Money in ELSS Zone to Avail the Benefits?
You must have prepared yourself through some way or the other to travel the ongoing tax season and avail maximum possible benefits on your taxable income. If you have planned it through the way of ELSS fund investments, then nothing could be better than this. But, still, there are somethings you need to be cautious about from the next time or if you haven’t planned yet, then you must take some points into consideration.
Here, we are discussing about some common mistakes that ELSS investors make. If you too are doing the same, then you must change them.
- Beginning Late: It is seen that most of the time people start investing in ELSS funds during the end of the financial year when the tax season is about to approach. However, it is the habit in human beings that until and unless things do not hit them, they remain unconscious about the same. Similarly, in tax planning too, investors keep sleeping the whole year and when it comes exactly to their door step, they wake up and join the herd to save themselves from the tax slap. This costs them sudden and high requirement of energy, i.e., high investment cost due to unfavorable market conditions.
Moreover, starting late in investments in ELSS can also skip other benefits which an early starter can reap. If you start planning for your tax saving investments from the beginning of the year, the first and foremost benefit you get is that you can avoid the headache of the last minute rush and plan your journey effortlessly. The tax saving schemes invest in the equities which require a significant time to fetch return on investments. So, an early start can be beneficial to you in term of generating healthy returns on your investments. You can plan your ELSS investment by opting for an SIP in the suitable fund early in the year. Moreover, you can spread the investment over the year and can get the benefits of Rupee Cost Averaging.
- New Investment Each Time: Another common mistake found in most of the investors is opting for new ELSS fund to invest in every financial year to avail tax benefits. Investors somehow believe that they won’t get benefits on the fund through which they have already availed tax reduction last year and they invest in new funds every year. But, in reality tax benefits under section 80C are not counted this way. One can avail benefits as per the amount of investment made in each financial year, without considering the fact that the fund is fresh or an old one. So, if you too are doing such mistake, then don’t repeat it from the next time because this can cause you many disadvantages. One of the major disadvantages is that this approach leads to junks in the portfolio over the years. Each time you invest in new ELSS fund, it adds one more unit of the same category in your portfolio. It’s also a mess to manage multiple schemes, and ups and downs of the holdings of a similar category. Therefore, it makes sense to select one or maximum two schemes of ELSS after conducting proper research and sticking to it for the long-term period to fetch higher benefits on your investments.
- Withdrawing After Lock-In: Again, one more mistake most of the investors commit in their journey of tax-saving investment is withdrawing the money just after the lock-in of 3 years gets completed. This approach is not correct. However, investment companies do not force any of the investors to remain invested. But, by withdrawing the money, investors lose the strength of the investment that they gain over the period of 3 years. As ELSS are the kind of equity investments, one can gain massive return on the investments over a significant period of time.
- Never Opt for Dividend Plan in ELSS: Some of the investors opt for dividend plans in ELSS which is one of the biggest mistakes. Generally, in equity investments dividend plan does not allow your money to attain high growth because with each time of payout they cut the strength of the value of your investment. Therefore, opting for dividend plan in ELSS may hamper your second benefit from ELSS investment, i.e., wealth creation, no doubt you gain the primary one, i.e., tax deduction under 80C of up to Rs. 1.5 lakh.
- Selection of Fund on the Basis of Current Performance: Despite so many alerts and write-ups, and growing awareness of investments in equity mutual funds, investors tend to forget that equity investments should never be done on the basis of current performance. As ELSS Mutual Funds deploy the capital in the equities and related securities, investors should not choose them on the basis of current performances. It’s better if one chooses the tax saving funds after making proper research and analysis of the ability of the future performance of the funds and their holdings.
Henceforth, if you are doing any of the mistakes as mentioned above, then you must make some changes to your investment style by adopting a better approach, and thus reap maximum benefits. We, the team at MySIPonline, has brought you some of the investment tips which you can adopt for an healthy investment approach. Here they are:
- Select a consistent performer rather than choosing a star performer which is shining now but may extinct later.
- ELSS funds mostly invest in the stocks of large-cap companies which are less volatile in nature. So, you must also consider this fact while investing that all equity funds are not risky.
- From the first point mentioned above, you must learn a lesson that you should start investing in ELSS from the beginning of the financial year, i.e., from April onwards, so that you will not face difficulty in saving money from your taxable income due to last minute rush.
It’s time to take all these points into consideration and make changes to your investment style as required. For better approach and detailed understanding, you may consult your investment advisor. We, the team at MySIPonline, wishes you a very happy & prosperous investing and tax saving season.
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