5 Mistakes to Avoid While Investing in Tax Saving Mutual Funds

by Raghav M. Marketing Is it possible to create a financial blueprint without planning your taxes? Surely not. And, if given a chance, who wouldn’t want to accrue tax deductions on their income, right? One of the most popular investment options is tax saving funds that allow you deductions from income tax under section 80C.

 Most of the tax saving funds are ELSS schemes which provide much better returns than the other traditional investments. Making the investment and enjoying attractive returns is liked by all, but it can be little risky too if you are clueless about how to make an investment. So here are some common mistakes that you must avoid while investing in these funds.

1. Last moment investment

Investors usually tend to invest in Tax Saving Mutual Funds towards the end of the year. Since this period can be uneven when it comes to cash flow, the investment made may not yield adequate results. You must have a proper strategic planning of investment which is equally divided in different months to accrue attractive returns. So, next time, don’t wait for the end of financial year to look for ELSS funds. Start looking early so that you do not make wrong choices.

2. Selecting the current toppers

Seeing the past records, investors tend to get attracted towards the latest chart toppers. This is one of the biggest traps they fall into because the performance in the mutual fund market is never constant. So, while making the investment, rather than looking for latest funds, select the ones with consistent performance.

3. Being Impatient

Tax saving funds have an obligatory tenure of up to 3 years. Though this time duration is lesser than the other traditional investment options, one must not make a mistake of quitting out immediately after the period gets over. This exit may prove to be very costly. So, stay for a duration of minimum 3-4 years after the completion of the lock-in period to gain results.

4. Frequent investment

Another common mistake that investors usually commit is investing in many ELSS schemes every year. This leads to accumulation of a large number of schemes at the end of three to five years which becomes very troublesome to manage. Thus, invest less but with efficiency.

5. Nature

Investors tend to forget to look at the quality and type of funds like large-cap, mid-cap, and small-cap. Check the type that suits you the most as large-cap is more volatile than mid-cap and mid-cap more than small-cap.

Though this market of investments and mutual funds may appear very lucrative, one must not be in any haste before investing the money. Avoid the most common mistakes, and you will surely be yielding better returns with the same input.

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Created on Dec 31st 1969 18:00. Viewed 0 times.

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