Educate Yourself

Equity Linked Savings Schemes

Investing in Equity Linked Savings Schemes? Use the SIP route.

It is common for investors to invest a lump sum amount in tax-planning funds as the financial year draws to an end. However, a better alternative to the lump sum investment could be to disseminate this investment through the year by investing in the ELSS via a systematic investment plan (SIP).

    1. Is an SIP in ELSS allowed?

      ELSS is a diversified equity fund that qualifies for tax exemption under section 80C of the Income Tax Act. SIP is a mode of investing that enables the investors to invest at regular intervals in a fund of their choice – including ELSS funds. SIP allows the investor to invest a fixed sum of money on a pre-decided frequency, thus bringing in an element of discipline into investing. Investor can also choose between growth and dividend plans when investing via SIP.


    2. How much time does it take for an SIP in ELSS to start?

      To start an SIP, investors need to fill in a form and submit it to the fund house along with the SIP mandate, thereby registering the SIP. This form is available on the MF website and can be easily downloaded. Alternatively, investors can contact a distributor for the same. It usually takes a bank 15-30 days to register an SIP mandate.


    3. What should be the tenure of an SIP?

      While there is no mandatory tenure for an SIP, it is recommended that an SIP should have a tenure in line with your investment goal. Those investors who did not start at the beginning of the year have the option of paying a lump sum to make up for the missed instalments. A minimum time frame of 6 months for an SIP is usually stipulated by fund houses. SIP’s can be done for periods of 1 year, 3 years or investors can also choose the perpetual option. However, while investing in an ELSS fund one must stay invested for the lock-in periods of 3 years.

    4. Does SIP in ELSS have any advantage?

      One of the biggest advantages of an SIP in an ELSS fund is that it avoids the last minute rush of investing. SIP’s help in spreading investments through the year thus averaging out their cost. Investments in ELSS upto 1,50,000 can be claimed as deductions per financial year.

    5. What is the lock in period for the investment?

      All investments in an ELSS have a lock in period of three years from the date of investment. Thus, every instalment of an ELSS SIP will be locked in for three years. An SIP instalment of 10,000 per month started on Feb 1, 2018 will be locked in till Jan 31, 2021. The second instalment will be locked in till Feb 28, 2021 and so on.

    6. Are lump sum investments allowed in an ongoing SIP?

      Yes, you can add lump sum investments during the year in the same scheme in which you have an SIP. For this you will need to fill in an additional purchase form and mention the amount of lump sum investment. The SIP will continue to run with the monthly instalment that you had originally opted for.

      Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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