The equity-linked saving scheme (ELSS) is a type of mutual fund, that encourages long-term investments in equity. The main objective of investing in ELSS is long-term capital growth and tax saving. ELSS enjoys EEE benefit. The investments you make are tax-free up to Rs 1.5 Lakhs a year under section 80C. The returns and the money you get at withdrawal are tax-free. However, there are some mistakes, investors commit while investing in ELSS. In this article, we will focus on some mistakes to avoid while investing in ELSS.
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Many Investors invest in ELSS only at the end of the financial year, whenever they have to submit their investment proofs to save tax. But this is not a good idea. Investing at the last minute may force you to invest a lump-sum amount. You can enjoy a lot of benefits, if you invest in ELSS at the beginning of the financial year through SIP. Investing through SIP provides benefits such as disciplined investing, rupee cost averaging and the power of compounding.
While investing, one should not try to time the market. If you are not an experienced investor and don't know much about the stock market, then you won't be able to recognize the exact time to invest. So, it is recommended to identify and invest in funds that are performing well. It very important to stay invested in the market during both ups and downs.
It is very important to understand the fund category before investing. Asset management companies offer ELSS mutual funds as large, medium, and small cap funds. Risks also vary on the basis of the fund you choose. So, first analyze your risk-taking ability and identify whether you can bear risk. You can also take the help of your financial advisor to understand the fund and choose a suitable scheme.
You should not select the dividend option while investing in ELSS mutual funds. Instead, you should select the growth option. If you select the dividend option, you will lose gains from the compounding effect. In case of growth fund, your gains are reinvested and this helps in growing your money over a long period of time.
ELSS has a lock-in period of 3 years. Some people redeem their investment soon after the end of the lock-in period. But, one must avoid doing this to gain good returns from the investment. Investors should remain invested in equity products for at least 5-7 years to get handsome returns.
Investors should avoid investing in too many funds, as it becomes difficult to monitor the progress of your investment. You won't have time to dedicate to the investment. Too many funds are difficult to handle. Be Wise, Get Rich
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