Mistakes to Avoid While Investing in ELSS

Mutual funds and equities through demat account have been seeing a good inflow of money from the investors. The incredible fact is that people continue to invest in the ELSS mutual funds even after the imposition of 10% tax on LTCG. With the advantage of deduction up to Rs. 1.5 lakhs and many other benefits, investors still commit mistakes while investing in ELSS funds. In this article, we shall look into the mistakes that investors must avoid while investing in ELSS.

Investing in ELSS

Mistakes That Investors Must Avoid While Investing In ELSS Funds

  • Exit After 3 Years is Not Necessary

Many investors prefer investing in ELSS funds because it has a lock-in period of 3 years. This makes them a disciplined investor when they start a SIP in these funds. However, the investors commit the mistake of exiting the ELSS funds when the period of 3 years is over. They believe that once the lock-in period of 3 years is completed, they have to exit. This is the wrong perception. The investors must avoid taking such decisions and continue to hold their investments in ELSS funds even after completing 3 years.

  • Look Beyond Section 80C Limit

Investors put their money in the best ELSS fund for saving tax in a financial year. But they must realise that the limit under section 80C will sooner or later exhaust when their income is increasing. This does not mean that investment in ELSS mutual funds is of no use. The long term benefits of these funds are immense and they can generate handsome returns for you if held for a long time. Therefore, it is important to consider ELSS funds beyond the section 80C limit.

  • Ignoring benefits of SIP in ELSS Funds

Often investors invest in ELSS funds during the last quarter of the financial year for the purpose of saving tax. But they fail to realise that the real benefit of best ELSS funds is when they start investing via SIP. It makes them a disciplined investor and offers the benefit of rupee cost averaging. Therefore, investment in ELSS funds must be made in the form of SIP.

  • Investing in Many ELSS Funds

Another common mistake which investors often commit is that they invest or start SIP in too many ELSS mutual fund schemes. If they check their portfolio after a few years, they find that they hold 7-10 ELSS fund units. This is not right because every ELSS scheme requires good tracking of the performance by looking into its holdings, expense ratio, etc. This cannot be done when you are holding 7-10 ELSS funds. Therefore, it is always recommended to invest in 1-2 ELSS schemes so that the performance can be efficiently tracked.

  • Diverting from Financial Plan and Risk Appetite

Many times investors buy ELSS funds just to reduce their tax burden. They do not consider whether the funds suit their financial plan or risk appetite. Like for example, if someone is 50 years of age or above then adding more ELSS funds in the portfolio is not a great idea. Likewise, the ELSS plan must suit your financial plans and goals. Therefore, proper care should be taken while investing in ELSS plans.

There are many ELSS mutual fund plans in the market. As a beginner, you can contact Kotak Securities to seek expert advice in picking the right ELSS funds for you. We understand your financial goals and risk appetite before suggesting any ELSS fund. You can even open a demat account with us.

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