ELSS Investors common mistakes

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Mutual fund advisors complain that new Equity Linked Saving Schemes (ELSS) investors are getting into these tax planning mutual find schemes without doing any homework. According to them, many new investors are flocking to ELSSs these days. However, they have no idea about the product or how they can use it to meet their financial goals.   

Majority of the investors who are starting to invest in ELSSs at this point are those who just wake up to fight the fire. These investors have no financial plans and want to invest in an ELSS just to save their tax. This approach is not entirely wrong, you can start investing with an ELSS but some investors dump their investments after the mandatory lock-in. That's risky

ELSSs have a mandatory lock-in period of three years, which is the lowest among all the products under section 80C. However, an investor need not necessarily sell his investments after the mandatory lock-in period. If the scheme is performing well- that is, beating its benchmark and category average- the investor can hold on to his investment to meet a long-term financial goal.   

This has been our concern with many investors who invest just to save taxes. Basically, these investors do not have a goal other than saving tax for that particular year. So, they have a tendency to move out as soon as the lock-in gets over. Equity investments are meant for long-term. Many of these investors do not even understand that ELSS is essentially an equity scheme. You need to be invested for more than five years or it is risk ..

keep your investments in ELSSs for a long term and earn better returns, you must link it with an long-term financial goal. The beauty of this product (ELSS) is that in addition to being an equity scheme providing superior returns, it also helps you save taxes. Nowadays investors do the opposite. Investors will invest in them for tax saving and forget that it is an equity scheme. The fundamental character remains the same

Investing in ELSSs is more crucial than the previous years. Since the market is around its historical peak and there are a lot of disruptions happening. It is necessary to invest very carefully. If you think you will invest in an ELSS and get out after three years, remember that in 2019, India is going for the general elections. The markets will be highly volatile at that time

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