Elss Sip A Winning Combination For Tax Saving For Retail Investors

At the start of a fiscal year, financial planners usually advise investors to opt for systematic investment plans (SIPs) in equity linked savings scheme (ELSS) mutual funds. This not only obviates the last-minute rush where investors park a lump sum in tax-saving funds, but also helps them spread their investments through the year.

Even though it is an ELSS, play it smart through the SIP route.

A systematic investment plan (SIP) is a phased approach to investing. That means, each month when you get your salary, you invest a small amount in an ELSS. There are three distinct advantages in this SIP- approach to ELSS buying:

  • Tax planning becomes more of a planned affair for you rather than trying to bunch all your tax-related investments in the last quarter. This not only inculcates saving discipline but also saves you the funding blushes in the last quarter.
  • You obviously get the added benefit of rupee-cost averaging by opting for a SIP. That means when the NAV goes down you buy more units and when the NAV goes up you get a better yield. Over the longer term, this approach tends to be more productive for you.
  • SIP on ELSS helps you create liquidity on your ELSS on a rolling basis. For example, if you start your ELSS SIP in April 2017, then that installment matures in April 2020. However, if you bunch all your ELSS investments in March 2018, then you have to wait till March 2021 to liquidate your ELSS investment.

Remember, ELSS investing is not just about saving your taxes via Section 80C. While the tax break is critical, it is the lock-in period that enforces discipline on the investor and the fund-manager. Of course, do not forget to adopt the SIP approach while investing in ELSS. That gives you a combination of stable returns, tax efficiency and rupee cost averaging. Surely, a winning combination!

Invest through SIP to make Tax Planning Quick & Effortless!

Information on tax benefits are based on prevailing taxation laws. Kindly consult your tax advisor for actual tax implication before investment.

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