Skip to main content

SIP Vs Lumpsum: What Is Ideal For An ELSS Fund?

Equity-linked savings scheme (ELSS) is a kind of mutual fund scheme that essentially invests in equities, i.e., the stock market. It is an attractive avenue in which investments of up to ₹1,50,000 qualify for a tax deduction per the Income Tax Act of India, Section 80C. But should you choose a systematic investment plan (SIP) or make a lump sum deposit to invest in this scheme? Here's a look. 


Differences Between SIP and Lumpsum Investment


SIP

Lumpsum

You can invest a fixed amount of money at regular intervals (annually, half-yearly, quarterly, monthly or weekly).

You need to buy the chosen number of units in one go.

It doesn't depend on the timing of the market.

It uses the strategy of timing the market. 

You can develop financial discipline by building the habit of making regular and planned investments. 

It doesn't foster financial discipline since it involves a one-time investment.

It doesn't depend only on market turbulence. 

It is very market-responsive. 

It is suitable for investors with a low to moderate risk appetite.

It is better for investors with a moderate to high risk appetite.

The cost of investment is less due to rupee-cost averaging.

The cost of investment is high since it's a one-time investment.


Should You Choose SIP or Lumpsum Investment for an ELSS Fund? 

To decide whether SIP or a lumpsum investment is best for an ELSS mutual fund, consider the following factors:

 

Risk Appetite

The two investment methods differ significantly in terms of the degree of risk they carry. A SIP offers better capital protection since you invest just a part of your entire corpus in the plan.

For instance, if you invest ₹1.2 lakh in a financial year, you need to pay ₹10,000 monthly via SIP. Your total investment is spread out. So, the overall risk falls. Investors with a high-risk tolerance can choose a lump sum investment since it invests your entire amount in the market at once. 


Returns

In both cases, current market conditions influence the expected returns from the chosen fund. SIPs perform well even in unpleasant market conditions. However, a lumpsum investment in an ELSS fund has the potential to offer better returns in a steady market. 


Lock-In Period

These investment modes have different lock-in periods. Generally, SIP has a minimum lock-in period of 3 years, and it matures in a sequence. However, a lumpsum investment is unlocked in one go after 3 years. 

For instance, your lumpsum investment in an ELSS fund will mature after 3 years. On the other hand, SIP bonds will mature one by one (based on the months of your investment) after 3 years. 


Conclusion

Consider the above factors to choose the investment mode that's the best for ELSS mutual funds. If in doubt, speak to the experts at the fund house for guidance.

Labels:

Comments

Post a Comment

Popular posts from this blog

Maximise Your Returns: 7 Suggestions for Investing in Gold ETFs

Purchasing actual gold is a popular investment option in India. However, several things could be improved in buying, storing, and selling gold. Gold ETF funds are another option for investors wishing to diversify their portfolio with gold. A Gold Exchange Traded Fund, or Gold ETF for short, is a one-of-a-kind hybrid of a stock and a mutual fund. This is an open-ended mutual fund where the price is determined by the price of gold in real-time. Unlike mutual funds, however, gold ETF funds can be bought and sold on the stock market. On the other hand, Gold mutual funds can only be purchased or redeemed at the conclusion of each trading day based on their Net Asset Value. (NAV). Unlike direct investments in physical gold, gold ETFs, or ETFs that trade in the commodity gold, allow investors to capitalise on market opportunities in real-time. At the same time, they enable investors to invest in one of the most sought-after and desired commodities: gold. How to Invest in Gold ETFs Gold Excha...
Post a Comment
Read more

What are the expected or calculated returns on mutual fund investments in India?

  A typical search history for a young professional living in Bangalore, who has just started receiving steady salary might look like:  "Highly-rated restaurants in Bangalore" "Popular travel destinations in India" "Top-performing mutual funds in India"   While it's tempting to spend all your salary on the luxuries you’ve been dreaming of, your financial responsibilities and monthly expenses should take precedence. However, this does not mean that all your dreams have to fade away entirely. To make sure you fulfil all your dreil all your dreams and obligations, start saving and invest in mutual fund online in India in order to achieve good returns.   Let's begin by answering the question, "What is a mutual fund?" Before we proceed, let's quickly review the basics. Mutual funds are investment schemes managed professionally by asset management companies (AMC) to meet the needs of individual investors. The AMC pools funds from multiple ...
Post a Comment
Read more

Elss Mutual Funds Simplified: The Right Mix of Tax Saving And Wealth Creation

When compared to other investment tools available under Section (80C) of the Income Tax Act of 1961, investing in ELSS mutual funds is an economical approach to saving taxes. ELSS has a shorter lock-in period and expert fund management, which can result in wealth accumulation. This article will teach you more about the various characteristics of ELSS funds. What are Equity-Linked Savings Schemes? The best ELSS mutual funds are managed by skilled finance experts known as fund managers and are available through nearly all investment houses in India. ELSS mutual funds are the only type of mutual funds that qualify for tax breaks. Investing in ELSS will save you up to Rs 46,800 (annual tax deductions of up to Rs 1,50,000) per year in taxes. You can, however, invest more than the specified amount, but any excess over Rs 1.5 lakh would not qualify you for tax benefits under Section 80C. The returns earned by ELSS are subject to capital gains tax (LTCG). The Union Budget 2018-19 reinstated...
Post a Comment
Read more