Market experts and intermediaries observe that nowadays many first time investors and taxpayers flock towards mutual funds.
Among them, ELSS or tax-saving mutual fund seems to be a popular choice as it builds long-term wealth as well as help you save big on annual taxes. However, do keep in mind a few tips to ensure that you make the best first step in mutual funds this year.
Tip 1: Tax saving should not be your sole priority. Meeting your short-term and long-term financial goals should. Saving maximum on annual should be an additional benefit. Experts say ELSS is best-suited for a long-term investment tenure of 5-7 years.
Data shows many ELSS investors in 2018 to be from the 22-30 age group. However, putting your hard-earned money in any ELSS to save taxes is not a good move.
If you don’t have the time or patience to research the best plans, many reputed intermediaries can handpick plans customised and aligned to your requirements and investment profile the best because building wealth towards your investment goals is more important.
Tip 2: Don’t put all eggs in one basket. Putting all your savings in a single ELSS is not a good idea. It is advisable to align only your long-term financial goal (like buying a home, planning for retirement, etc.) to your tax saving mutual fund.
Not every goal can be long-term. It is essential to address your short-term goals and aspirations as well as be prepared for possible emergencies in your financial planning.
Start listing down different investment goals and divide them into ultra-short-term, short-term and long-term with suitable investment for each. As mentioned above, ELSS works well for long-term goals.
Tip 3: Invest early on to enjoy flexibility and affordability of Systematic Investment Planning. You don’t feel the brunt of a one-time lump sum payment. Additionally, it is way easier to put away a manageable amount every month when salary gets credited.
Investing a lump sum is not a feasible option for all, especially young earners. This way, ELSS is flexible as you can invest in monthly instalments through SIPs.
It inculcates financial discipline and saving habit. Also, it makes for an ideal and safe beginning to the world of equities as there is no need to time the market due to rupee cost averaging.
Tip 4: 11th hour ELSS is not a good move. Not only will you lose out on many benefits, but you also end up making hasty and possibly wrong choices.
Investing at the beginning of the year gives you time to research and make a choice that will work best for you; and if you are not happy with the performance, you also get time to adjust your portfolio.
Last minute investment also leads to putting your entire investment amount in the market at one go as SIP is not an option for slowcoaches. The early investment allows you to invest through SIPs as elaborated in the third tip.