Investing in ELSS? Avoid these 5 Mistakes

ELSS is one of the popular tax saving instruments under section 80C. People however tend to forget that in addition to being able to save tax their financial goals can also be achieved by staying invested in ELSS for a considerable period of time. In fact, ELSS gives you much better returns as compared to many other investment options like FD, PPF etc.However, before you decide to jump in and invest in ELSS, here are 5 common mistakes that you should avoid:

1. Redeeming too soon In ELSS it is mandatory that you stay invested for 3 years. However, if you want your fund to reach a sizable corpus, you should stay invested for a minimum period of 5 to 7 years. Patience to stick to your investment even when faced with losses can help you amass a sizable wealth over a long period of time.
2. Investing in too many fund One common mistake that investors tend to commit is investing in too many ELSS at the same time. It is similar to putting all your eggs in the same basket which should be avoided if you want to grow your corpus. Besides, investing in too many ELSS at the same time might make it difficult for you to review your investments.
3. Waiting for the last moment to invest Since, ELSS investments are normally seen as a tax saving option, most people tend to defer the investment till the fag end of March (end of financial year) and then scramble for funds to invest and save tax. However, investments should always be a planned activity with a definite goal in mind. Leaving your investment decision till the last minute and make you invest in a wrong fund.
4. Choosing dividend instead of growth Temptation to get back a portion of your investment amount at intervals, might make you invest in dividend option instead of growth option. However, this is a trap that you should avoid. While in dividend option the gains are paid back to you, in case of the growth option they are reinvested and can grow at the same rate as principal.
5. Timing the market The equity market goes through its own share of ups and downs commonly referred to as bullish and bearish phases. These cycles do not occur at fixed intervals and it is difficult to predict the impact of an event on the market. To avoid this pitfall, it is better to invest in the SIP format as it ensures that your gains are averaged through the UPs and Downs of the market. You can thus get a size-able amount by staying invested through the SIP mode over a long term period.

So, in a nutshell, mutual funds can give you tax savings and great returns at the same time. However, the key is to exercise due caution while selecting the right fund and staying invested for a long term to generate a size-able corpus.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.