Other than its lesser lock-in period and impeccable track record of beating inflation, typically, people look to Equity-Linked Savings Schemes (ELSS) as investments for long-term capital growth and tax savings. It’s even scored over fixed deposits, PPF, and other tax-saving instruments. However, simply investing a certain amount will not necessarily ensure results. So, watching out for common mistakes investors make while investing in ELSS is crucial.
Here are the five common mistakes investors make.
1. Last-minute investment
Investing a lump sum amount to save on tax is an incorrect approach and ill-advised. Besides putting a strain on your cash flow, it may force you to invest in mutual funds schemes that are not right for you. You sold to invest a smaller amount regularly through SIP, say INR 5,000 monthly. This way, you save in a disciplined manner and avoid the last-minute rush. Don’t think of ELSS as a means of saving tax; it has the potential to generate enormous wealth in the long run.
2. Investing in many ELSS funds
mutual funds online, investing in several ELSS funds is akin to putting all your eggs in the same basket. You should avoid it because it defeats the purpose of an optimally diversified portfolio and hinders your corpus’ growth. It’s best to hold one to two funds to monitor and track easily.
3. Redeeming too soon
Amidst other tax-saving instruments, ELSS has one of the shortest lock-in periods of 3 years. While redeeming your investments at the end of 3 years is tempting, you should leave it in for longer (5 to 7 years) to maximize your returns, make the most of your investments, and achieve your financial goals. Don’t pull out even if your scheme consistently delivers well and outperforms the benchmark. Instead, pump in more investments and wait. Patience is key if you want sizable wealth down the road.
4. Choosing dividend instead of growth
You might choose the dividend option, as getting back a portion of your investment amount at intervals is tempting. Here, you lose the opportunity of creating wealth over a longer period. However, if you’re investing long-term, choosing the growth over the dividend option is best. The growth option reinvests your money to amass a great corpus.
5. Focusing only on best-performing funds
Investors don’t merely look at the returns for one year. More than short-term gains, you need to keep an eye out for consistency and sustainability of returns. Pick schemes that show steady growth over five years.
Investment in mutual funds is an art. If you want to create wealth, you need to seek the advice of qualified financial planners. Try DIY or online investment apps like Moneyfy and chalk out a strategy that helps you achieve your goal with minimum risk.