Mistakes to avoid while investing in ELSS
The Equity Linked Saving Scheme or ELSS investments are done with the objective of tax saving and long-term capital growth. The swift features of this scheme make it quite popular among people. They will not only give you high inflation-beating returns but they also promise an EEE benefit, which expands, to Exempt-Exempt-Exempt. But, before investing in the Equity Linked Saving Schemes, you must know about the mistakes that you should avoid.
Judging the fund by its performance in a short span of time
One of the first mistakes people make before investing in ELSS. Of course, you must check the performance of a fund before investing your money into it but the criteria based on which you should judge a fund. Past-performance of a fund is no doubt one of the major things to check but this performance also has some determining factors like the fund house and the fund manager’s track record, the sectors in which the money of the fund is being allocated, the prospect of growth in those sectors and so on. So, as you can see only a single figure cannot determine the performance of a fund until and unless you check all other factors that are playing a role.
Rush into investments just for the sake of saving tax
Most people have the tendency of rushing into an investment at the end of the year just because they want to save some tax. However, honestly, financial planning is something that must be well-calculated and decisions regarding them should not be made on the spur of a moment. Whenever you are investing in something suddenly, it means either you have not done your research well or you have depended on someone for suggestions. Both of these options are not safe. You should always do a thorough research and you should always do it yourself. Yes, if you cannot understand something, you can as well ask someone for help but you should go through the entire procedure yourself and not completely depend on someone else.
Choosing the dividend option overgrowth option
This is another of the major mistakes made by people while investing in ELSS. You should always choose the growth option and not the dividend option. This is because in the dividend option you will not be able to benefit from the compounding effect. However, in case of growth option, there will be a reinvestment of your gains, which will ultimately give you a good return on a long-term basis.
Redeeming the amount as soon as the lock-in period is over
The Equity Linked Saving Schemes have a three year of lock-in period, but you should not redeem your money just after that. If you want to make some good returns then you should always keep your invested for at least five to six years.
Investing in the right fund for the right duration of time will definitely give you good returns for your investment. But you must be careful about the potential mistakes to ensure that you are taking the right step.
