Things to keep in mind before you invest in ELSS

Financial experts suggest the best option to save taxes is to invest in ELSS. Just learning how to invest in ELSS would solve the problem at a considerable level. Equally important is to keep away from a given set of mistakes which have forbidden many investors of earning precious wealth. Apart from anything else an investor should be aware what they are doing to save taxes. There are some pointers you need to keep in mind before taking a plunge towards ELSS

Do not start late

You might be thinking this advice is a bit late in the year. Not only for ELSS is it important, but equally for all tax saving mechanisms. It does make sense to invest in a systematic manner through SIP to maximize your returns. In addition it provides you sufficient time to undertake a research on the investment you plan to make. Be aware that in case if you choose the wrong ELSS you do not have the luxury of changing it for the next 3 years. Starting early is the key, so you have sufficient time to research where and how to invest in ELSS.

Do not focus solely on the returns

Primary focus should not be to focus on returns when you are investing in ELSS. Clearly figure out whether the investment philosophy aligns with your financial objectives. For example a scheme that needs to work through a lot of risk to stay on top might not suit a conservative investor. For such persons a scheme with a conservative investment would be enough.

Do not go on to judge schemes on short term parameters

Not only for ELSS but for all tax saving instruments this measure holds true. It does not make sense to focus on a one or two year return that is driven by a particular scheme. Any scheme which you invest needs to be a consistent performer for the next 5 years.

Do not go on to redeem after the lock in period

In an ELSS the money is locked for 3 years. Once the lock in period is over some investors go on to pull out the money. If the scheme is not working well there is no need to pull out the money. Since ELSS invests in equities, you need to be prepared so that the fund stays intact for 5 years on an average.

Investment should not be only for tax saving

Yes ELSS might provide you with tax benefits but they are equity ventures. Even though they could be risky they can be extremely rewarding. When you are going to choose an ELSS scheme you need to be aware about risk, lock in period etc.

To sum it up the domain of ELSS is witnessing a rampant growth. Every other day one ELSS storms the market. Do not commit the mistake of accumulating too much ELSS. In managing your portfolio over a longer period of time it can be a major hindrance.