Which one to Choose between SIP or Lumpsum for the ELSS Investment?

Which one to Choose between SIP or Lumpsum for the ELSS Investment?

ELSS (Equity Linked Savings Scheme) is one of India's most popular Mutual Fund schemes. Apart from being a great capital-boosting investment, it is also eligible for significant tax benefits under Section 80C of India's Income Tax Act. Moreover, ELSS is easy to invest in; the whole process can be streamlined and made accessible by everyone.

There are two ways to invest in ELSS: one can either put a large lump sum or follow a systematic plan (SIP), which will allow you to increase your investment portfolio. Each method has its own advantages and disadvantages.

The Comparison Between- Lumpsum and SIPs

Both one-time investment and SIPs for Mutual Fund schemes are beneficial for an individual. An investor may choose to make a lump sum investment to capitalise on the accumulated returns over the entire tenor. This will generate a significant RoI. SIPs provide lower returns, but allow the investor to make periodic nominal investments. The first installment is for ten years and the second for nine. This is lower than for one-time investments.

SIPs allow investors to invest slowly by transferring a fixed amount into a fund of their choosing. Investing in ELSS is not expensive and will result in minimal financial strain. You also get a fixed return on your investment in debt funds.

The Advantages of SIP over Lumpsum Investment

1. The Simplified Investment Policy

Because the investments are spread out over time, SIPs make it easier to invest in ELSS. Because only a small portion of an investor is subject to market volatility, it lowers market risk.

This can be especially useful for investors who are new to the market and may not know when the best time is to invest. A smaller investment can help you gain a significant margin when the market is improving.

2. Average Rupee Cost

SIP allows individuals to take advantage of the rupee cost average. This is where fund managers buy more units in low markets to lower the investment cost per unit. These units are then sold at the peak of the market, which ensures higher returns.

3. Perfect for New Investors

Investing in ELSS can be a great way to start investing. They are able to build a routine and have a lower risk while still being able to invest. As they invest a smaller but fixed sum over a longer time frame, they gain exposure to the stock market and equity-linked schemes.

These tax-saving investments allow them to save substantial money that they can then reinvest to get better results.

Quant Mutual FundQuant Tax Plan Fund80.44%29.95%Rs 327.45
Bank Of IndiaBOI AXA Tax Advantage Fund62.95%21.59%Rs 490.17
Mirae AssetMirae Asset Tax Saver Fund56.85%21.29%Rs.8739.30
Canara Robeco Mutual Fund Canara Robeco Equity Tax Saver58.21%20.17%Rs 2469.50
DSP Mutual FundDSP Tax Saver Fund59%19%Rs9333.11

SIPs also have outperformed all other investment strategies, making them more attractive to many investors.

Lumpsum Investment - Benefits over SIP

1. Considered Ideal for self-employed individuals

Individuals who are self-employed or have no steady source of income should look into lump sum investments. SIPs require that you deposit a set amount each month. Investors who depend on seasonal income may have difficulty keeping up with the monthly payments for a systematic investment plan.

2. More Tax Benefits

An investor can get substantial tax benefits by making a lumpsum investment at the beginning of a financial year. This is allowed under Section 80C, the Income Tax Act. 1.5 Lakh of the total taxable income can be used to file an Income Tax return. This allows for higher returns on long-term investments in ELSS.

How do you choose between SIP and Lumpsum Investment?

Before you make a decision about whether to invest in one-time or a series of investment plans, it is important that you carefully consider these factors. These factors include:

1. Risk Appetite

SIPs and lumpsum investments have a primary difference. This is due to their different risk levels. SIPs offer greater capital protection as you only have to invest a small portion of your total assets into the plan. If you invest Rs. You only need to pay Rs. SIP is a monthly payment of 10,000. It spreads out the investment and reduces risk.

A one-time investment is for those who are more cautious. It allows you to put the entire amount in the market at once. This policy also promises significantly higher returns than other policies.

2. Returns

Both cases will have different returns depending on current market conditions. SIPs perform better in adverse markets while lumpsum investments in ELSS are more stable.

3. Lock-In Period

Different lock-in periods are available for a lump sum and SIP investments. SIPs typically offer a minimum of three years of lock-in, which matures sequentially. Lumpsum investments have a maximum of three years lock-in. Your investment in ELSS using a lumpsum deposit will mature as a whole, whereas SIP bonds, depending on the number of months invested, will begin maturing one at a time.

If an investor deposits all their capital on the 1st of September 2017, then all units will mature on the 1st of September 2020. They can be withdrawn at any time thereafter.

The scenario will change if you invest via SIP. An investor deposits fund each month starting on September 2017, October 2017, November 2017, and then continuing through November 2017. The units purchased on September 1, 2017, will be matured on September 10, 2020. Units bought in October 2017 will mature in October 2020. Units purchased in October 2017 will mature in October 2020. Units purchased in November 2017 will mature in November 2020. And so on.

Factors to Be Considered

If you need a steady income to invest in ELSS, a SIP is a better choice. If you have large funds, you can make investments in Mutual Funds through Lumpsum payments. If you invest before May, you can save taxes on your financial year.

SIPs are better suited to invest in volatile markets. Lumpsum investments are riskier, so it is better to choose a steady market for your one-time investments.

These are the guidelines for investing in Mutual Fund schemes via a Systematic Investment Plan (or lumpsum payment). You should carefully consider your return expectations before investing in any of these options.

Choosing ELSS can maximize Section 80C tax benefits. If you're investing towards the end of a financial calendar or have a greater risk appetite, Lumpsum investments are better suited. SIPs are better suited for those who want to avoid risks and have a steady income stream.

Best Wishes For investing, and good luck for the future!

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