Equity Linked Savings Schemes

Equity Linked Savings Schemes

You know that the best way to save tax is investing in Equity Linked Savings Schemes (ELSSs). But don't think that just putting the required amount in an ELSS fund assures your well-being. It is equally important that you avoid a host of mistakes that have robbed wealth of many investors.

The advice comes a little late this year. But it is an important one, not just for ELSSs but for all tax-saving investments. It is better to invest regularly through an SIP or STP in a tax-saving mutual fund to maximise returns. Also, it gives you enough time to do proper research about your investment. Remember, if you pick the wrong ELSS, you don't have the option of correcting it for the next three years. Start investing early, so that you have ample time to research about where to invest and how to invest in ELSS.

This point hold true for all the mutual fund schemes and not just ELSS. It is not advisable to invest your money based on six-month or one-year returns given by a particular scheme. "The scheme that you are investing in should be a consistent performer for at least five years," Returns are primary but don't just focus on returns when you are investing in an ELSS. Look whether its investment philosophy matches your view. For example, a scheme that takes a lot of risk to stay on top of the performance chart may not suit a conservative investor. The person would be better off with a scheme with conservative style of investment.

Many investors are lured by the dividend option when they invest in ELSS. The fact is that the dividend is actually paid to you from your own money. Unless you really need periodic income, don't opt for the divided option. If you want to create wealth, you should stick to the growth option. ELSS schemes provide you tax benefits but in the end, they are equity schemes. So you should remember that they can be risky, but they can be extremely rewarding. Whenever you are picking a tax-saving instrument like ELSS, be careful about the risk, lock-in period, returns, etc.
Don't redeem after the lock-in period : The money is locked for three years in an ELSS. Some investors tend to pull their money out as soon as the lock-in is over. There is no need to pull the money out if the scheme is performing well. Also, since ELSS invests in equity, you should be prepared to stay invested for at least five to seven years. "Investors need to be clear about the fact that the asset class they are investing in is equity and thus they should stay invested for at least five to seven years to garner good returns," Some investors wait for the lock-in period to end and jump to another scheme. Don't jump from one fund to another only because the other scheme is giving better return than your scheme. "If your fund is not performing well, you need not always pull your money out. The returns depend upon many aspects, like the size of the fund,". Find out the reasons for the underperformance. Only if the underperformance continues for long, while the markets are blooming, you need to rethink about your decision. Some investors invest in a new ELSS every year. This leads to hindrance in managing the portfolio over a long period of time. Having more ELSSs in your portfolio will lead to over-diversification and the portfolio will become hard to monitor.

Proin gravida nibh vel velit auctor aliquet. Aenean sollicitudin, lorem quis bibendum auctor, nisi elit consequat ipsum, nec sagittis sem nibh id elit. Duis sed odio sit amet nibh vulputate cursus a sit amet mauris. Morbi accumsan ipsum velit.