New Delhi, March 16 -- As the financial year draws to a close, many investors start reviewing their portfolios to see if they can reduce their tax outgo. One strategy that often comes up during this period is tax harvesting-booking capital gains up to the tax-free limit or realizing losses to offset gains and lower the overall tax bill.

The strategy can improve tax efficiency, but advisors warn it should not become an automatic year-end ritual. When used mechanically, tax harvesting can lead investors into unnecessary trades, poor portfolio choices and behavioural mistakes that hurt long-term returns.

"Tax loss harvesting can be useful, but the investor has to be cognisant of certain behavioural pitfalls. As long as it remains an add-on...