Three months remain to plan your taxes.
If you invest in #ELSS funds to save tax, here are 5 mistakes you must avoid to earn better returns.
A 🧵
If you invest in #ELSS funds to save tax, here are 5 mistakes you must avoid to earn better returns.
A 🧵
👉1. Lump sum vs SIP
Most investors make lump sum investments in ELSS (See table).
A lump sum investment doesn’t mean you will get lower returns.
#SIP doesn’t guarantee higher returns than a lump sum.
But SIP is still a better option.
Here’s why 👇
Most investors make lump sum investments in ELSS (See table).
A lump sum investment doesn’t mean you will get lower returns.
#SIP doesn’t guarantee higher returns than a lump sum.
But SIP is still a better option.
Here’s why 👇
Assume you have two options👇
A. Walk 20 kms in one day at a stretch
B. Walk 2 kms every day for the next 10 days
Which one looks more feasible? The answer, for most, is obvious.
The same applies to ELSS SIPs
Small amounts every month don’t put a strain on your finances
A. Walk 20 kms in one day at a stretch
B. Walk 2 kms every day for the next 10 days
Which one looks more feasible? The answer, for most, is obvious.
The same applies to ELSS SIPs
Small amounts every month don’t put a strain on your finances
For many, investing Rs 1.5 lakh in one month (March) can be difficult.
Such investors could end up investing less, postponing some expenses or borrowing.
None of this is desirable.
An SIP of Rs 12,500, on the contrary, is easier on the pocket.
Such investors could end up investing less, postponing some expenses or borrowing.
None of this is desirable.
An SIP of Rs 12,500, on the contrary, is easier on the pocket.
👉2. Changing ELSS every year
Investors constantly look for the best-performing funds.
So, when investing a lump sum amount, they may end up with a scheme that has recently given high returns.
This is why many investors end up with 4-6 ELSS funds in their portfolios.
Investors constantly look for the best-performing funds.
So, when investing a lump sum amount, they may end up with a scheme that has recently given high returns.
This is why many investors end up with 4-6 ELSS funds in their portfolios.
What happens when you have too many funds?
It leads to over-diversification.
How does that impact you?
The worst-performing funds will drag your overall returns.
Ideally, one ELSS is enough in a portfolio.
It leads to over-diversification.
How does that impact you?
The worst-performing funds will drag your overall returns.
Ideally, one ELSS is enough in a portfolio.
👉3. Missing your SIP or skipping it
You could miss SIP because you didn’t renew your mandate or even due to insufficient balance.
You can also choose to skip an SIP, if you are investing through platforms like ET Money.
Both of these can impact your returns. Here’s how 👇
You could miss SIP because you didn’t renew your mandate or even due to insufficient balance.
You can also choose to skip an SIP, if you are investing through platforms like ET Money.
Both of these can impact your returns. Here’s how 👇
Suppose you are an investor in the largest ELSS - @AxisMutualFund Long Term Equity
You have an SIP of Rs 10,000 for 10 years.
Your current returns = Rs 12.84 lakh.
What if you miss just one SIP every year for 10 years?
Your returns would be Rs 11.67 lakh, or 9% lower.
You have an SIP of Rs 10,000 for 10 years.
Your current returns = Rs 12.84 lakh.
What if you miss just one SIP every year for 10 years?
Your returns would be Rs 11.67 lakh, or 9% lower.
👉4. Not choosing the Growth Option
Do you like to pay higher taxes?
If not, then the growth option is for you.
In mutual funds, there are 2 popular choices:
A. Growth
B. IDCW (Income Distribution cum Capital Withdrawal)
Do you like to pay higher taxes?
If not, then the growth option is for you.
In mutual funds, there are 2 popular choices:
A. Growth
B. IDCW (Income Distribution cum Capital Withdrawal)
In IDCW or dividend-paying option, the fund manager pays out a portion of gains.
These payouts are taxed as per your tax slab.
But in the growth option, the returns are re-invested.
Over time, your gains also compound, helping you earn better returns.
These payouts are taxed as per your tax slab.
But in the growth option, the returns are re-invested.
Over time, your gains also compound, helping you earn better returns.
👉5. Redeeming ELSS immediately after the 3-year lock-in
The longer you stay in an ELSS, you can earn better returns.
What happens if you withdraw immediately after the 3-year mandatory lock-in?
There are chances that you may end up with negative returns. (Check table)
The longer you stay in an ELSS, you can earn better returns.
What happens if you withdraw immediately after the 3-year mandatory lock-in?
There are chances that you may end up with negative returns. (Check table)
Some investors recycle their ELSS investments.
They redeem their earlier investments. Then, they re-invest those to get a tax deduction in the prevailing year.
There are two problems here.
A. They may need to pay tax on gains
B. You shouldn’t invest merely to save tax.
They redeem their earlier investments. Then, they re-invest those to get a tax deduction in the prevailing year.
There are two problems here.
A. They may need to pay tax on gains
B. You shouldn’t invest merely to save tax.
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