Lump sum or SIP: Which is better for ELSS funds?
2 min read
ELSS (Equity Linked Savings Scheme) is a type of mutual fund that invests in equity and equity-linked securities. The unique thing about ELSS is that, unlike other mutual funds, it has a lock-in period of three years. Moreover, it also offers tax deductions of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act, 1961.
Since it is a mutual fund, it offers you the option to invest through a SIP (Systematic Investment Plan) or in a lump sum. Let’s find out which of these options is better.
Lump sum or SIP: Which is better for ELSS mutual funds?
Advantages of a SIP investment:
A SIP allows you to make periodic investments in ELSS mutual funds. Here are some benefits of a SIP:
- You can build financial discipline over time and invest consistently using SIPs.
- SIPs ease out the burden of investment by offering you the opportunity to invest in smaller quantities.
- SIPs offer the advantage of rupee cost averaging. So, even though your SIP amount remains constant, you are able to buy more units when the price is low and fewer when the price is high. This averages out the cost of investment over the long term.
- You can claim tax benefits for as many years as you invest through a SIP. For instance, if you invest for ten years, you can claim tax benefits of up to Rs. 1.5 lakh for all ten years.
Advantages of a lump sum investment:
A lump sum investment refers to investing your money in ELSS mutual funds in a one-time investment. Here are the benefits of a lump sum investment:
- You may not always be able to claim the total tax deduction of Rs. 1.5 lakh through a SIP. However, you can do so through a lump sum investment.
- A lump sum investment can be an excellent way to use surplus income, bonuses, gifts, etc., towards securing your future.
- A lump sum investment may be particularly great for self-employed individuals. Businesses or freelancers may not have a steady flow of income for SIPs. But they can use lump sum investments.
Which is better?
Now, coming to the big question, a SIP may be a better option for ELSS mutual funds as it helps you invest consistently for a long time. It also offers benefits like rupee cost averaging that may be missing in the case of a lump sum. Having said that, if you have an unsteady flow of income, you can stick to a lump sum investment. Remember that some investment is better than no investment.
To sum it up
No matter what you choose, make sure that you are able to meet your investment target and save sufficiently for your goals. ELSS mutual funds can offer several benefits, so the sooner you invest in them, the better it can be for your financial health. You can download the Tata Capital Moneyfy App and pick suitable ELSS funds for your needs.
