4 common mistakes investors considering for tax saving mutual funds need to avoid while buying an equity linked savings scheme or ELSS. Investments not earmarked for major needs Investors often don’t consider major needs, like financing their child’s higher education, when buying mutual fund equity linked savings schemes (ELSS). This limits their future utility. You must identify important goals that require large savings, prepare a plan, earmark ELSS investment for the goal, and invest regularly.
Dividend Trap Distributors often hard sell ELSS investors by holding out the hope of a dividend payout. But dividends lower the scheme’s net asset value (NAV) in proportion to the dividend distributed. So, instead of dividends focus on the scheme’s overall performance. Swayed by short-term performance Investors are often swayed by the performance of the scheme over the short term, typically 6 to 12 months. The correct thing is to consider performance over three and five year periods to get the complete picture about the consistency of the performance. Tripped by eleventh hour rush Making hurried, last minute investments can lead to faulty investment choices. Remember, an ELSS has a mandatory three-year lock-in period before which any investment mistakes cannot be undone.
