Investors are often on the lookout for investment options that can help them grow their wealth, fetch significant and regular returns, while also helping them save tax. Enter ELSS mutual funds. ELSS, also known as equity-linked savings scheme are equity-oriented mutual funds with at least 80% of their total assets in equity and equity-related securities. These funds are also known as ELSS tax saving mutual funds as these funds are eligible for tax deduction of up to Rs 1.5 lac under Section 80C of the IT Act, 1961. You can save up to Rs 46,800 by investing in ELSS tax saving funds.
What are the benefits of investing in ELSS funds via SIP?
Following are some of the advantages of investing in ELSS funds through SIP mode:
- Optimal use of mutual fund investments: An investor can make the optimum use of any type of mutual funds by going forward with an SIP option. Why, you may wonder. Because when you invest in small amount, you can easily put away your savings and invest in ELSS mutual funds each month, instead of allowing your money to sit idle in a savings account. That sum you invest has the potential to fetch returns that are as high as 10 to 15% instead of the 3-4% one usually receives from a traditional savings account.
- Rupee cost averaging: In SIP mode of investment, an investor invests a specified amount regularly. Hence, they end up purchasing lesser uits of the mutual fund when the markets are high. Similarly, one tends to buy more units when the markets are low. This averages out the purchase cost of the mutual fund scheme over time. This concept is popularly known as ‘Rupee Cost Averaging’. This enables one to out the highs and lows of the market and further reduces their risk significantly.
- Convenient: SIP is a very convenient way to invest in ELSS. Once you have selected the desired mutual fund scheme and provided the bank mandate to invest in SIP in pre-determined intervals, you do not have to bother yourself with being concerned to pay or write any cheques. The specified amounts will be automatically debited from your bank account each month.
- Invest in small sums: The best part of SIPs is that an investor can invest minimal sums each month. You can get the benefit of investing in mutual funds with just Rs 100 each month. So you can adjust the amount according to your income and how much you are able to save and invest.
- Discipline in investing: SIPs brings the needed discipline in your investing style as you have to invest a particular amount each month. It also forces you to shade your expenditures so that you have enough balance in your account to pay for SIPs instalments.
SIP is a godsend investment avenue to those who wish to multiply their wealth proficiently without parking too much of their funds in a single asset class at any given time. Happy investing!