We discuss here 5 common ELSS mistakes to avoid
These are common mistakes while buying ELSS or Equity Linked Savings Scheme
They prevent you from getting the most out of Equity Linked Savings Scheme investments
ELSS combines tax savings with high long term growth
The first mistake is that people don't earmark ELSS for long term financial goals
This often leads to premature exits if things go wrong
Second, opting for dividends that prevent you benefit from ELSS' high growth potential
Money needs to stay invested to grow. The higher risk of ELSS is for getting growth
Investors buy ELSS after getting swayed by short term performance
Last-minute ELSS investments lead to incorrect investment decisions
Investors make the mistake of redeeming ELSS after the 3-year lock-in
They need to stay invested for the long term to get the typical high growth of ELSS
When buying ELSS Fund, you take a higher risk and thus need high growth
Like every journey, the investment journey of ELSS needs a financial goal
Determine why you are investing in ELSS and earmark it for long term needs
ELSS experiences market turbulence and hence is unsuitable for short term needs
This is like any other equity fund where investors' money is invested in equities
People end up buying too many ELSS and try to zero in on the "Best ELSS"
People get too affected by short term performance and buy current outperformers
Buying current outperformers often means people having too many ELSS over time
This is pretty much like driving a car focussing on the rear-view mirror
Previous ELSS outperformance may or may not get replicated
Asset classes determine 90% of the long term returns. In this case, it is equities
Check past performance of ELSS to avoid any troubled ELSS and also invest with confidence
Check 1-, 3- and 5-year ELSS performance before buying
By relying on past returns, they tend to quit the ELSS investment during volatile markets
You are unlikely to make premature exit from ELSS if it is earmarked for children's future or your retirement
Don't buy ELSS for dividends. The money needs to keep growing for ample savings
Regular income needs other investments, not tax-savings investments like ELSS with a 3-year lock-in
Don't invest in ELSS at the last-minute and take incorrect decisions in a rush
Stay invested in ELSS after the 3-year lock-in if the performance is on course with respect to benchmarks and peers
ELSS have broadly the same portfolio and they don't warrant too many investments
There are far too many items in Section 80C like home loans and children's tuition fees besides provident fund
This leaves limited headroom for tax-saving investments