4 important things to remember before you invest in an equity linked savings scheme (ELSS) through an systematic investment plan (SIP).
Hello and welcome to FundooMoney, your 24X7 buddy for all your money matters. Some of us are aware of the various advantages of systematic investment plans (SIPs) offered by mutual funds. Among other things, they help you invest regularly, say, every month.
While you can go through more basic information about SIPs on this channel, here we would like to discuss about how you can start an SIP for an equity linked savings scheme for a mutual fund. While you can have an SIP for any kind of mutual fund, with ELSS being a tax-saving equity mutual fund, which allows you tax deductions for investments upto Rs 1.5 lakh under Section 80C, SIPs in them allow you to do your tax savings every month. This is fairly important as ELSS is considered as one of the best tax saving investments.
Before you get started with an SIP in an ELSS, you need to know about 4 important things. We will discuss them in just a little while.
Considering the volatility in equity markets, an SIP is the best way to invest in ELSS. Here’s how to get started.
Select the scheme carefully
Compare ELSS schemes, especially their performance compared to their benchmarks and other ELSS over one-, three- and five—years. You can visit website of mutual fund houses and other credible players and use online comparison tools.
Here, it is worthwhile pointing out that you need to earmark a financial goal such as retirement for your ELSS investment for which you enrolling in the SIP.
Choose an appropriate SIP date
You should choose the SIP date carefully. Ensure that the date is such that the money is available in your bank account on the SIP date or the bank may charge a penalty.
Know about SIP period
Typically people get confused about lock in period and SIP period of an ELSS. Remember ELSS has a lock-in period of three years when you don’t have access to your money. You need not to do an SIP for three years, as many people mistakenly do. Only SIP investments made in a financial year is considered for tax deduction. For instance, if you start a SIP of Rs 5,000 for three years in September 2016, you can avail the tax deduction of Rs 35,000 or the amount equivalent to seven monthly investments.
Lock-in period
In the case of ELSS SIP, each investment or SIP instalment, is treated as a separate investment and has a three-year lock-in period. So, if you started investing in through ELSS SIP in April 2016, you can redeem the units bought in the first instalment only in April 2019. Those units bought in May 2016 can be redeemed only in May 2019, and so on.
We hope you found this useful. Do share with us and others on the channel your tips, on smartly investing in ELSS SIPs. For more such actionable personal finance information and regular uploads, subscribe to our channel. Also, visit our website, download our mobile app and stay connected with us on Instagram, Pinterest and Slideshare.
