SIP vs lumpsum – What is better for ELSS investment?
Are you looking for a way to save up for a holiday to the Maldives or saving up for an early retirement? Or maybe just looking to grow your wealth and meet some other financial goal? Equity Linked Savings Scheme (ELSS) is one of the options that you as an investor can choose to grow your wealth, with an additional benefit of tax saving.
What is an Equity Linked Savings Scheme?
Understanding ELSS is pretty simple. With the help of an advisor or even on your own, you can invest your money in equity mutual funds for a lock-in period of 3 years, following which you could earn attractive returns.
Now, there are a few things you should keep in mind:
- Research who’s investing for you, thoroughly. Having access to a good mutual funds advisor can be the key, if you yourself are not very investment-savvy. Have a clear idea of yourinvestment goals; what are you looking to do with the money once you withdraw? For how long are you looking to invest?
We know that mutual fund investments are subject to market risks, so invest after understanding the risk and the market forces. Spend a little time learning how to invest well; the time you spend on learning about ELSS or equities and mutual funds, in general, should be helpful in understanding the best options for you.
- There are ways to be clever about it and make it work for you; you have a plethora of investment options and access to information at your fingertips. In addition to that, if youinvest in ELSS, you will also save on your taxes. Make an effort to understand taxation rules.
- Choose investment plans that don’t end up costing you a fortune. Having said that, there may be opportunities where the rewards are worth the risk. With a transparent mutual funds advisor, you will get to know exactly when it is okay to opt for plans that have high costs associated with them. Read the fine print, always.
Once you’ve chosen the right product for your ELSS investment, it’s time to decide how you will invest in it.
There are two avenues you could choose, lumpsum investments and SIPs (systematic investment plans).
A lumpsum investment is where you invest a chunk of money in one go. SIPs, on the other hand, allow you to invest a pre-determined sum at fixed intervals, similar to recurring deposits offered by banks.
ELSS: Lumpsum vs SIP – Which option to choose?
If you are a businessperson that rakes in substantial revenue during a peak trading period, or in any other profession where your income is irregular, lumpsum ELSS investment may be an option to consider. Your returns will accumulate during the tenure of the investment. You will also be able to cash it in at once, as these investments are unlocked at a go after the lock-in period of 3 years.
On the other hand, if you are a salaried employee with a regular stream of income, investing in the ELSS fund through SIPs may be the way to go for you. With SIPs, your investment is done in smaller amounts over time.
Investing through SIPs is ideal for beginners and new investors, or even seasoned investors with a regular cashflow. You may even decide to invest in lumpsum if you get any irregular cash, like a bonus or a gift.
