Investing in ELSS points to investing in securities. Before you opt for an ELSS investment route there are some pointers you need to be aware.
Start early and do not make it too late
Not only for ELSS but even for many tax-saving instruments the key is to start early. In order to maximize returns, starting early and being regular is the key. At the same time if you pick the wrong ELSS funds you do not have the option to remove the fund for the next 3 years. Investing in the correct and right manner is the key so this means that you have sufficient time to research which type of ELSS funds you need to invest.
Do not judge any schemes keeping short-term performance in mind
Not only for ELSS schemes but for any other mutual funds schemes this logic holds valid. In the eyes of industry experts, it would be perfect to invest in a scheme that has performed well for the last 5 years.
Do not focus on returns only
Yes, returns on investment are important, but if you focus only on returns you cannot achieve a lot from ELSS funds. Do evaluate carefully where the ELSS matches your investment profile. For example, a scheme that would be on top of the investor chart where risk exposure is on the higher side does not work out for a traditional investor.
No point to retrieve funds after a lock-in period
As the money is locked in a for a period of 3 years an investor would pull back the amount once the period is over. No specific reason to pull out the fund if the investment goes on to perform well. Just bear the fact that you need to spend around 5 to 7 years to earn a decent amount of money in an ELSS scheme.
Another pointer is that there are investors who just wait for the three-year period to be over. The moment it is done they jump on to the next available fund. Do not commit such a mistake as you need to invest in a fund where reasonable returns are assured.
As already stressed upon you are entitled to Rs 1, 50,000 under section 80 C of the Income tax act. Not only is an investor in a position to earn tax rebates but capital appreciation.
No limits can be set with ELSS investments. You can invest any amount of money but only to the tune of 1, 50,000 are deductible in terms of tax.
To conclude there is a certain degree of risk with ELSS funds. Just like any other type of equity related funds, ELSS too carries the same level of risks. If the market witnesses a bear phase, you can also expect the ELSS funds to drop its value. Even today the ELSS funds have its own risks which are determined by the type of company you are planning to invest.