It is tax-saving time again and I hope you are ready. If not, you are not alone. I learned to plan my investments better over the years, especially after having once paid Rs. 10,000 more in taxes that I could have saved. This is when I discovered equity-linked saving scheme (ELSS) funds. ELSS funds not only helped save tax, but also earn better returns. Investing in equity is always a journey of a lifetime. Avoid these mistakes to make that journey more rewarding.
With ELSS funds, be an early bird and start investing in April, as soon as the new financial year begins. Investing is not just about putting money. If you invest in a rush in one go, you will pay more, use up all your savings and even lose it all if the markets are volatile. Yes, a last-minute investment may cancel out your tax amount, but will not create wealth if you hurry.
When you delay your tax-saving plans until December, you often invest a lumpsum amount to get it over with. Yes, a lumpsum amount takes care of that tax bill, but you lose out a chance to grow your wealth and also average out the cost of your investment. Here’s how a systematic investment plan (SIP) may help you do both. Start an SIP early in the year to invest more in small portions and also beat volatility in the market. When the markets rise, you will gain from a high net asset value (NAV) and earn more units when they fall.
Eager to save tax on time, you have hastily to invest in the first ELSS fund you can spot. Now wait and hold on to it for the long run, rather than sell it off the moment the three-year lock-in period ends. As you have already seen, equity pays off in the long run, after you have stayed invested for at least 5-7 years.
You can invest up to Rs. 1.5 lakh in ELSS funds to save tax. However, it is essential that you invest the right amount and not more or less. Investing too little will limit your returns, whereas a huge investment will block money that you could have invested elsewhere. You may also be tempted to invest in a new ELSS fund every year, chasing better returns every time. Doing so will only over-diversify your portfolio and make it difficult for you to track your earnings.
It is most likely that both you and started investing in equities through an ELSS funds. Well-begun is half done and it is essential that we don’t burn our fingers in our first attempt. To invest safely, check the stocks that your ELSS fund invests in and whether they are risky or not. Start off with an ELSS fund that parks your money in reputed stocks to make that first investment your best one.
In all, do not invest at random. Invest wisely to be wealthy.