Should You Invest Using Lump Sum or SIP in ELSS Funds?
Having decided to start saving and investing for a financially secure future, the first question that one needs to answer is ‘What to invest in?’. There are various investment instruments available in the market that help you earn attractive returns on your savings, grow your savings faster and achieve your financial goals sooner. The ideal investments are tax saving investments, as therein, not only are you saving the amount you invest in the instrument but are also saving in the form of reduced tax payments.
Equity Linked Savings Scheme (ELSS) is one of the best tax saving investments available in the market today. Investments in ELSS are eligible for exemption under Section 80C of the Income Tax (IT) Act, to a maximum amount of INR 1.5 lakh. Thus, if you have invested this amount in an ELSS plan during a financial year, the same is deducted from your taxable income for that year.
Now let us understand the difference in earnings if we choose to invest in the best ELSS funds through a one-time lump sum amount or through a Systematic Investment Plan (SIP)
Which Is Better For ELSS Investment – SIP Or Lumpsum?
When investing a lump sum amount in ELSS, you buy units worth the investment amount at the then prevalent price. The earnings you make would depend on the appreciation of the Net Asset Value (NAV) of your fund.
Investing a lump sum amount would be advisable only in low price volatility markets as the prices are rather steady and cost averaging becomes irrelevant. Since the entire amount is invested over the entire duration, the returns are higher.
In a SIP, you invest a small but fixed amount at regular intervals during the entire tenure. This enables you to average the cost of the units purchased. In simple terms, you are able to accumulate a higher number of units when the NAV is lower and vice versa.
Since the investments made herein are during the entire tenure, every installment will stay invested for a different timeline and earn a different amount. This mode of investing is advisable for highly volatile market conditions as there would be a lot of room for cost averaging.
What Are The Advantages of ELSS Investments Via SIP And Lumpsum?
Benefits Of Lumpsum Investment In ELSS Funds
- If you are a business owner with seasonal revenues, you may consider investing a lump sum amount. You may also consider combining lump sum and SIP-based on your monthly inflows. This ensures there is no financial distress while investing.
- Investing the entire section 80C tax benefit amount at the start of the financial year is recommended if you have the money available. This allows your money to earn higher returns because of long-term investing.
Benefits Of SIP Investment In ELSS Funds
- If you are a salaried person and are only able to save small amounts on a regular basis. Hence, SIP is the ideal instrument for salaried persons like you. This helps develop investment discipline.
- Ensures you have no financial distress while saving because a small amount is invested at regular intervals based on your income.
To conclude, to go for a lump sum investment into the best ELSS funds, or to invest in ELSS through SIP is more about the availability of funds with you and the volatility of the markets. The returns earned by either route cannot be compared as both modes do earn different amounts but the spread between the two is not that big. To know about these investment options and start investing easily, download the Angel Bee app today!
How To Invest Via SIP Or In ELSS Funds?
If you have surplus funds during volatile market conditions, it is recommended you do not leave the money in your bank account to invest through SIP. If you do not want to invest as a lump sum, you may invest the same in a liquid fund and then shift it to an ELSS plan with a Systematic Transfer Plan (STP). You will be able to earn higher returns on your liquid fund investment when compared to the bank account. Therefore, you will be able to accumulate more ELSS units through the STP. However, making accurate predictions about market volatility based on short-term performance is very difficult. It is recommended you consider the macroeconomic situation and global conditions to determine market movements.
Timing the market accurately is very difficult even for seasoned investors. Therefore, you must ensure you do not try to identify the bottom during falling markets. The best way to combat the volatility is to use a personalized mutual fund advisory such as Angel Bee’s ARQ. We understand your money investing needs and then suggest you the best performing tax-saving funds. Download Angel Bee today to experience the new way to get rich!