Equity-linked savings scheme, popularly known as ELSS funds are excellent tax-saving investment options for investors looking for wealth appreciation. In simple words, ELSS mutual funds serve the dual benefits of tax-saving and wealth generation over a long period. Investments in ELSS are eligible for tax emeption for up to Rs46,800 u/s 80C of the IT Act, 1961.
You can invest in ELSS funds either via SIP mode or Lumpsum mode. What is a Systematic Investment Plan or an SIP, you may wonder. Under the SIP investment method, an investor chooses a scheme according to their investment needs and invests a fixed amount in these schemesregularly. Let’s understand the benefits of investments in ELSS via SIP.
What are the benefits of investing in ELSS funds via SIP?
Following are some of the benefits of investing in ELSS mutual funds through SIP mode:
- Optimum use of mutual funds: An investor can make the best use of any funds that they have by going in for an SIP investment option. Why so? Because when you invest in small sums, you can invest the savings you are able to put away each month straightway in ELSS mutual funds, instead of letting it sit idle in your savings account. That sum you invest has the potential to give you returns as high as 10-15% instead of the 3-4% you usually fetch from a traditional savings account.
- Rupee cost averaging: In SIP, you invest a fixed amount regularly. Hence, you end up purchasing more units of the fund when the markets are low. Similarly, you tend to buy lesser units when the markets are high. This averages out the purchase cost of the fund over time. This concept is popularly known as ‘Rupee Cost Averaging’, or the eighth wonder of the world. So you this enables you to out the highs and lows of the market and reduce your risk significantly.
- Convenient: SIP is a pretty convenient way of investing in mutual funds. Once you have chosen the desired scheme and provided the bank mandate to debit the sum you wish to invest in the SIP in fixed intervals, you do not have to bother about remembering to pay or write any cheques. The amounts will be auto-debited from your bank account each month.
- Invest in small sums: The best part of SIPs is that an investor can invest really small sums each month. They can get the benefit of investing in a mutual fund with just Rs.100 a month. So they can adjust the amount according to how much they are able to save and invest.
- Discipline in investing: SIPs brings the required discipline in your investing style as you have to invest a fixed amount each month. It also forces you to curtain your expenditures so that you can have enough balance in your account to pay for SIPs investments.
SIP is a godsend investment avenue to those investors who wish to multiply their wealth efficiently without parking too much of their money in a single asset class at a given time. Happy investing!