Most of us are aware of SIP method of investing in mutual funds and its benefits. Mutual Fund SIPs help you invest small sums of money regularly every month. The best part is that you can start investing in ELSS mutual funds through SIP schemes.
You can start SIP for any type of mutual fund scheme. However, for ELSS, which is a tax savings mutual fund that allows you tax deductions for investments up to Rs. 1.5 lakhs under section 80C, SIPs in ELSS funds allow you to make tax savings every month. This is a very important point as ELSS is considered one of the best tax savings instruments.
Here are the 4 important things that you need to know before you start SIP for ELSS scheme
Select the scheme carefully
Considering equity market volatility, SIP is the best way to invest in an ELSS scheme. You must select the ELSS scheme carefully. The best way to start is to compare ELSS schemes in terms of their performance benchmarks over 1-year, 3-year, and 5-year horizons. This can be done by visiting websites of mutual fund players or by using credible online comparison tools. It is important to earmark a financial goal such as retirement for ELSS investment for which you are enrolling in the SIP.
Choose an appropriate SIP date
You should choose the SIP date carefully to ensure that you have enough funds to take care of the SIP on that date.
Know about SIP period
Typically, people get confused on lock-in period and SIP period of ELSS. Remember, ELSS has a lock-in period of three years when you don’t have access to your money. Moreover, you need not enroll for SIP for three years as many people mistakenly do. Please note that only SIP investments made in a Financial Year are considered for tax deduction. For example, if you start an ELSS fund SIP for Rs. 5,000 for three years in September 2016, you can avail a maximum deduction of Rs. 35,000 (7 months X Rs. 5000) or the amount equivalent to seven monthly investments.
In the case of ELSS investment through SIP, each SIP investment is treated as a separate investment and has a lock-in period of three years for each SIP. For instance, if you started investing in ELSS through SIP in April 2016, you can redeem the first units bought in April 2016 only in April 2019. Similarly, units bought in May 2016, can be redeemed only in May 2019, and so on.
For more information on investing in ELSS funds through the SIP route, write us on [email protected]
Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.