Things to Keep in Mind while investing in an ELSS

If you are keen on saving tax, you have got the perfect opportunity with the schemes mentioned under Section 80C of the Income Tax Act. Equity-Linked Saving Scheme (ELSS) is one of the most feasible schemes for the tax savers. You can get the dual benefits of tax saving and impressive returns on your investment. Sounds good, right?

But, investors make mistakes while investing in ELSS. You should know that ELSS is concerned with the equities and hence, you have to consider certain aspects before proceeding with the investment. Here, we have listed certain things that you should keep in mind while investing in an ELSS.

Start Investing Early

As humans, we have the tendency to postpone things. We wake up when there is a need. The same is true with the investment for the purpose of saving tax. When we realize that we can save tax by investing in ELSS, we start the process towards the end of the year. Result? We end up struggling with the cash flow problems.

Secondly, if the market is at its peak, we risk our money by purchasing the equities at the highest NAV. This could hamper the returns on the investment.

Therefore, you should start investing from the starting only. Select a suitable systematic investment plan for yourself. This way, you will be organized in terms of financial management and you will take a wise decision without being in a hurry.

Keep Your Investments within Limits

People have the tendency of investing in a new ELSS scheme every year. This way, they end up diversifying their portfolio more than required. Instead of investing every year, you should select 2-3 ELSS schemes, or equity schemes, and keep on investing in them for a longer maturity period of around 5-7 years. If you don’t play by the three-year lock-in period, you can earn impressive returns on long-term investment.

Remember, you are entitled to receive tax benefits of up to Rs 1.5 lakhs under Section 80C. So, if you have already invested your money in EPF, PPF, or any other scheme; you can limit your investments in ELSS.

Instead, you can opt for other equity-based schemes that can offer higher returns on your investment. Invest in a diversified fund to earn higher returns that ELSS. Also keep in mind that you can start an SIP (as your investment technique), into an ELSS. If you wish to do that, go through the best sips in 2017, to get a clear idea first.

Don’t Invest just for the Sake of Investing

An investment is an investment, whether it is in ELSS or in some other fund. Before investing your money, you can consider different kinds of market. For example, large-cap markets are less volatile but they offer average returns on your investment. At the same time, small-cap and mid-cap markets are highly volatile. These can offer impressive returns but there is always a high risk. Therefore, you should analyze before proceeding with the investment.

The analysis is based on the performance as well. You will fund ELSS that are performing exceptionally well for the past 1-3 years. And if you invest on this parameter, you may risk your investment.

Hence, you should look out for the consistent performer. The consistent performer is the one that beats the category average consistently for a period of 5-7 years. You have a higher probability of lucrative returns on these ELSS funds.