Equity linked saving scheme (ELSS) is a popular tax saving option. You can get tax concessions if you invest up to Rs.1.5 lakh in a financial year. Besides tax benefits, ELSS also has the potential to generate higher returns than other tax saving investments. It also comes with the shortest lock-in period of three years which makes it an attractive tax saving option.
It is seen that many investors postpone tax saving to the last minute. It is only when the HR asks for investment proof that investors look for tax saving options. As a result, investors pick the wrong investment product. One way to make sure that you are not investing in a wrong tax saving product would be to plan tax saving way ahead in time. Nowadays, there are a number of tax saving products that allows to invest in a systematic way all-round the year. This reduces the last minute hassles.
You can also invest in a systematic way in ELSS by opting for Systematic Investment Plan. This will help you to invest in a disciplined manner. Once you set up an SIP, your investment amount will be automatically debited from your savings account to your mutual fund.
Easy on pocket: Once you figure out the investment amount that you want to save through ELSS in a financial year, you can easily divide the figure by 12 to come to the monthly amount that you need to invest. You can also set up quarterly SIP. As your entire investment corpus is broken into many parts, it becomes easy on your pocket. For example, you want to invest Rs.1.2 lakh in ELSS, you can easily set up a monthly SIP of Rs.12,500.
Disciplined investment: As you are investing a regular sum of money on a regular basis, it instils a sense of financial discipline. Your investment decision is not based on the market ups and downs and hence you are free from taking any investment decisions based on your emotions. Many a times, investors want to time the market and burn their fingers. It is next to impossible to time the market. Hence, SIP is the preferred investment route for investors.
Rupee cost averaging: While you are investing in ELSS through SIP, you are automatically allotted units irrespective of the market levels. When the market is low, you are allotted more units of the fund and less units when the markets is high. Thus, it averages your investment. This phenomenon is called as the rupee cost averaging which is one of the main advantages of SIP.
Take advantage of the highs and lows: SIP allows investors to take advantage of the market highs and lows. If you do a lumpsum investment in an ELSS fund, the unit price of the fund will be based on that day’s prevailing unit price (net asset value). Any further uptick or downtick in your portfolio will be based on the unit price of the investment day. In case of SIP, you can take advantage of the lows and highs of the market. In case of market lows, you are allotted more mutual fund units and when there is an upward movement in the market, the overall value tends to rise in a proportionate manner.
Now that you know about the benefits of investing through SIP in ELSS, here are some of the questions that you may have in your mind.
What is the lock-in period?
In case of SIP investment in ELSS fund, every instalment is locked for three years. For example, if you start an SIP of Rs 12,500 per month on June 1, 2019 for one year. The first instalment will be locked till July 2022, while the second instalment will be locked till August 2022, and so on.
What should be my investment tenure?
As SIP allows you to stagger your investment over the entire financial year, the SIP tenure should be at least 1 year. Many fund houses have a minimum of six months of SIP tenure. You can also opt for a perpetual SIP. You can easily increase or stop your SIP anytime you want.
Can I add lumpsum in the fund?
You can add a lumpsum amount to the same scheme in which you are running an SIP.
How much can I invest?
Many fund houses have a minimum SIP amount of Rs.500. There is no maximum limit. You can invest as much as you want and earn returns on it. However, the tax benefit is only available for the Rs.1.5 lakh investment that you done in the year.
Investing in ELSS through SIP is a simple process. It is light on the pocket and gives you the benefit of rupee cost averaging. So, this year, don’t wait for the last moment to start investing in tax saving options, plan now and relax later.Tags: mutual funds, SIp, elss
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