ELSS or Equity Linked Savings Schemes are admired by investment experts when it comes to saving taxes. But they also admit that regular investors need to understand the horizon completely as ELSS is not just about investing a certain amount of money. If you select a wrong scheme, you become restricted to that for at least three years.
The tax saving mutual funds work best for you when you avoid all the following mistakes:
- Auditing performance in a short timeframe
The consistency of ELSS schemes assures you about the performance. However, many investors make the mistake of looking at the performance for a limited period of time. And that leads to wrong selections of schemes. Even if you judge a scheme’s performance for a year, it doesn’t provide enough performance information. That is why experts suggest auditing the performance of the schemes for more than five years of time frame.
- Not giving yourself enough research opportunity
Investors who start very late tend to hasten the process of selecting a scheme. As a result, they end up losing a great opportunity of maximizing their returns. ELSS present hundreds of options, which makes research extremely important. You need to give yourself enough time to research the lock-in period, returns, and tax saving properties of the schemes.
- Limiting your options in the search for top returns
Gaining returns is one of the important purposes of investment, but it is not the only purpose you should follow. Investors forget about their own investment needs and waste their time searching for top return offering schemes. This mistake can lead you to very risky schemes, which does nothing for a conservative investor. So, a better approach would be if you find schemes that suit your needs in every possible manner.
- Using ELSS just to save tax
Sure, ELSS schemes are popular for saving tax. But there is a lot more you can achieve from such schemes. Using your analysis of lock-in period, risk factors, and other features, you can make these schemes highly rewarding. Many investors miss this opportunity and end up having minimal benefits. So, always remember that ELSS schemes are ultimately a form of equity schemes and they can help you grow your wealth in the long term.
- Taking out dividend even when you don’t need it
Dividend money is provided to you from your own investment. The option is a facility for people who need periodic income. But it definitely impacts your ability to generate wealth in the long term. That’s why smart investors keep their money invested and get the maximum growth opportunity in the process.
- Pulling your money as soon as lock-in ends
Getting your money immediately after the lock-in time frame ends is another mistake investors make. The equity schemes of this kind have the capacity to grow with time. So, if the scheme is performing well in the market, then you can stay invested for about 6 to 7 years.
Avoid all the mentioned mistakes, and you will get better returns on ELSS schemes.