An ELSS fund is an Equity-linked savings scheme and is the only kind of mutual fund eligible for tax deduction according to Section 80C of the Income Tax Act, 1961.
It has a three-year lock-in period and there are no options for a pre-mature exit. Most people consider investing in ELSS funds to be ideal as it gives out inflation-beating returns in the long run.
But there are some common mistakes people make which potentially result in their loss. Below are a few mentioned:
- Last Minute Lump sum Investment:
Before making any investment decision, it is important to take a considerable amount of time researching if it’s the right fit for your goals and investment strategies.
Investing last-minute means, that not enough research is done about the company you are willing to invest in. You might have seen their recent IRR and taken a decision.
But proper research consists of looking at their IRR reports of three, five, seven, or ten years to gauge the rolling rate of the company to ensure you get better returns in the long run.
- Redeeming After 3 Years:
As ELSS funds have a three-year lock-in period, most people redeem their money exactly after the three years time period.
Equity investments should always be approached with the long-term perspective in mind. By investing only for 3 years, we are interrupting the work of compounding unnecessarily when we could leave it untouched and enjoy the fruits of our patience years later.
One easy way to stop ourselves from redeeming within a short period of time is to connect your investment with a long-term goal of yours such as your children’s education or their marriage or your retirement life.
To learn more; you can watch our video on “7 Common Mistakes while Buying ELSS” mentioned below.
This video covers more examples of other common mistakes and suggests ways how you can avoid them in detail.
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