Aug 29, 2017 4 min read

Know Which Process is the Best to Invest in ELSS: SIP or Lump Sum

Get the additional benefits while saving taxes if you invest through SIP process. Know how.
ELSS mutual funds are among the best categories which provide various tax benefits to the investors. Majority of the investors opt for ELSS funds to get certain advantages on their taxable income u/s 80C. It also comes with the least lock-in period of three years which in case of other tax-saving investment options is more than seven or ten years.

But, it is not the only objective of these funds, along with providing tax benefits to the investors, they also generate excellent growth in the invested capital over time.

Investors consider ELSS at the last moment of computing their tax liability when they realise that they do not have sufficient investments to showcase for the current financial year to avail deductions. Moreover, many investors fail to decide through which way they should invest in ELSS to gain maximum benefits, and get confused between SIP and lump sum. Let’s know which way of investments in the mutual fund is a good bet for investing in ELSS!

Investment in ELSS Through SIP:

It is well known that Systematic Investment Plan (SIP) is a process which allows the investors to travel the journey of mutual fund investments in a hassle-free manner. It reduces the burden of paying a big amount of money at once and allows the investors to invest on a fixed instalment basis. On the other hand, ELSS is the category of mutual fund schemes which allows tax benefits under section 80C of Income Tax Act. So, one can reap the benefits from this fund class at the end of a financial year when filing the income tax returns. SIP allows the investors to spread the total investment over the year so that one can avoid the last-minute rush of investing a big amount in order to save taxes. One can enjoy a hassle-free process of saving taxes by investing regularly through SIP.

Investment in ELSS Through Lump Sum:

Lump sum investments are also considered as one of the ways of investing in mutual funds, but it does not provide the benefit of hassle-free investment like SIP. In a lump sum investment, you need to invest the total amount at a time, which can be a burden for many of the small investors as well as the big investors because the financial conditions may not be same all the time. If you are willing to invest in ELSS mutual funds through a lump sum, then you need to invest the total amount at a single time which can be a headache for most of us. Furthermore, the main motive of ELSS funds is to provide tax benefits which can become questionable by making big investments at a time.

Therefore, avoid the burden of paying the big amount and start saving taxes by opting for a hassle-free method of investing in ELSS mutual funds. You can also avail the other benefits of SIP while investing in ELSS schemes which include:

  • Rupee-Cost Averaging : You can reap the advantages of purchasing units at different market prices if you invest through SIP. It further helps in averaging the price of the units resulting in reducing the total cost of investment. On the other side, a lump sum investment will allow you to buy funds at the existing price only. Therefore, you end up buying more units in SIP which ultimately increases returns on your investment.
  • Disciplined Investment : When you invest via SIP, it builds a habit of regular savings in you. Unlike in lump sum, you need to invest the total investment amount at once which does not maintain any regularity or discipline in the investment. Therefore, you can avail this benefit while fetching tax benefits by investing in ELSS funds through SIP.
  • Small Amount Big Gains : SIP investment has its own benefits which attract all the investors toward it. By investing the small and regular amount, you can avail big benefits of creating wealth for your future needs. So, choosing SIP for investing in tax saving mutual funds becomes more beneficial.
  • Convenience : Many people can not manage to collect big amount to invest through a lump sum, so SIP provides them a way to invest in partial payment just like EMIs. Therefore, it becomes more easy for them to fetch tax benefits if they invest through SIP.

Hence, one can avail additional benefits along with getting the reduction in taxable income by investing in ELSS through SIP. Furthermore, you can make good plans and smartly invest from the beginning of the year unlike jumping into the rush at the last moment with lump sum investment. So if you want to buy the best-recommended ELSS schemes in India, MySIPonline has the list of the top ones. Start investing with us right away.