5 Mistakes That You Should Avoid While Making ELSS Investments

February 8, 2019 Tom Clark | Comments Off

The season of Income Tax is going to be upon us. The season when hundreds and thousands of earning employees in India will have to pay some amount in the name of Income Tax. A time when people will start looking for ways to save some tax and even start looking for methods to increase the returns.

Indian Income Tax offers investors the option to save taxes while generating revenues on it through Section 80c and one way that has risen above the others when it comes to saving taxes and generating high returns is ELSS or Equity Linked Saving Schemes.

ELSS has indeed found a prominent name in the list of tax-savings investments, but there are still a number of people who refrain from making an ELSS fund investment. There are two reasons for this -1. Their general lack of understanding of how ELSS works and 2. The lack of returns that the SLSS fund offers.

Both the reasons that are a doing of mistakes that investors generally make. In this article, we will be looking into the mistakes that ELSS investors make, which takes them away from their dreams of generating massive revenue while saving tax.

Let us start with it.

Mistakes that should be avoided when making ELSS Investment

1. To judge the ELSS fund on the basis of their short-term performance

Choosing an ELSS fund to invest in is single-handedly one of the most difficult choices to make. While, it can be lucrative to make ELSS investment in fund that offers high returns in the short-term, there are a number of other things that you will have to take into consideration, such as – the sectors in which the fund house is making your investment in, the economic situation, the track record of the fund house and the fund manager, etc.

2. To Invest only for saving taxes

While the benefit of saving taxes is very high in case of ELSS fund investments, that should not be the primary aim for the investors to put their money in the mutual fund investment mode.

The fact that ELSS comes with the promise of high returns is something that is too much to ignore and solely because of that, you should invest in the ELSS mode because of the high returns and not with tax saving as the primary intention.

3. To redeem investment after 3 years lock-in

A number of investors usually get into ELSS investments to save taxes under Section 80c and the lock-in period of three years. The fund type gives you the option to redeem the amount or re-invest it once the lock-in period ends. However, more often than not, people choose to redeem the amount – Mistake number three.

Instead of taking the invested amount out, you should keep it invested for higher returns in the long-run.

4. To Choose Dividend over Growth

Most of the ELSS funds come with two options – Dividend or Growth. In the case of growth, the returns are cumulated at maturity while in case of a dividend, you can receive income from time to time.

While, on the superficial level, it is the dividend option that seems like the right choice, it is through the growth option that you can let the money remain invested and make the most of the rupee cost averaging.

5. Don’t start too late

While yes, you are in fact reading this article just 2 months before the tax season, the timing in actuality is apt for those who are forward thinkers and wish to not let the 2020 opportunity out of hand.

So, instead of waiting for making your ELSS investment at the mid or by the end of the investment period, now is the apt time, ergo make an ELSS fund investment the second after you stop reading this article.

With this, you have now seen all the mistakes that can drive your ELSS investment towards failure and the ways to prevent it from happening. And now that you have seen it all, let me give you a simple formula to ensure that you never face a downfall – Patience.

I know it sounds too old-school, but patience is indeed the only way to ensure that you remain invested for long and get the maximum of the invested amount and efforts that you have put into all throughout the three years lock-in period.

In case you are looking for more insights into the right ELSS investment practices, contact our team of mutual fund experts today!