Mistakes to Avoid While Investing in ELSS Mutual Funds

A lot of people are looking at investing in Equity-Linked Saving Schemes (ELSS), where they can get equity-like returns along with the benefit of tax saving. All investors are not aware of the short-comings if investments are made incorrectly in ELSS.

When investing in ELSS mutual funds, investors make many mistakes. Here are some mistakes investors should avoid while investing in ELSS

1] Not Understanding the Fund Category

The fund category is very important to understand. The most of the AMC’s design and their ELSS tax saving mutual fund scheme is based on the large, mid and small cap. Their risk and returns are varied. Firstly, you must know your risk-taking capacity whether you will be able to risk or not. In this situation, you take help from your financial adviser. Your advisor helps you to know all holdings mentioned in your scheme and choose the fund accordingly.

2] Choosing The Dividend Option

While investing in ELSS mutual fund schemes you should opt for a growth option. Because you can lose on gaining from compounding effect if you opt for the dividend.

Yet, in dividend payout option, the gains are not invested but are paid out. And it is not available for compounding, resulting in lower long-term returns. When you are investing for long-term capital growth in any of the equity mutual fund, one should opt for the growth option.

3] Never Late Is Better

The investors invest in ELSS towards the end of the financial year.  They must submit their investment proofs to save the tax. This is a last-minute rush. In this ill-strategy, one can force many investors to invest a lump-sum amount in tax-saving instruments. It is not suitable for them leading to a cash crunch.

When you start your investment in ELSS at the beginning of the financial year thorough SIP then you could enjoy various benefits of SIP such as disciplined investing, power of compounding, rupee cost average, besides tax benefits. That’s why never late is better to invest as early as possible. Early to rising, makes one wealthy and wise.

4] Trying to Time the Market

When you are investing do not try to time the market. If you don’t have experienced investors with a phenomenal understanding of the market, then the chances are that you are not able to recognize the exact time to invest.

There is a high amount of uncertainty which makes it impossible to correctly forecast events and their impact on the market. When you invest then you have the patience to ride through the rough and tumble of the stock markets.

5] Only Looking for Best Performers

When Investors try to invest in only the best performing scheme at that time they make a mistake. The schemes based upon one-time best performance cannot tell if the scheme will do well in the future.

Investors should consider the consistently best performing of ELSS. For making your right decision and checking the performance of the fund with its benchmark for the last five years will help you.

Before investing into any kind of mutual fund, you should remember that; Mutual fund investments are a subject to market risk. Read the offered scheme related documents and information carefully before investing.