Does SIP in an ELSS Makes Sense?

With the growing awareness about Mutual Funds more than doubling the industry’s assets in the past three years, more and more people are catching on to the fact that for tax saving, Mutual Funds Sahi Hai! ELSS (Equity Linked Savings Schemes) funds have shot up in popularity in the past year or two. Here are a few reasons why you should consider starting a SIP in an ELSS.

No Year-end rush

So many of us get caught up in the struggle of putting together enough funds to invest in tax saving schemes at the very end of each fiscal year. Not only is this stressful; it also puts you at risk of taking ill-thought-out decisions that you could potentially end up regretting later.

By running a SIP in an ELSS throughout the year, you’ll have completed the lion’s share of your tax-saving investments well in time – so while your friends and colleagues are fretting, you can sit back and relax!

Long Term Compounding

It’s a well-known fact that investments that are linked to the stock markets need the magic element of time to compound and grow.

By continuing your SIP in an ELSS over the long term, you’ll ensure that your money compounds – that is, earns ‘returns on returns’, and therefore outpaces inflation over the long run.

Compare this with tax saving FD’s or PPF accounts, which do not compound your money, and you’ll see the difference that a SIP in an ELSS Mutual Fund can make.

Rupee Cost Averaging

Since ELSS funds are linked to the equity markets, they can potentially be volatile. For this reason, you may find yourself in the unlucky position of having invested in an ELSS just before markets begin to correct, as many investors who deployed lump sums in ELSS Mutual Funds on or before 31st January this year realized.

By running a SIP in an ELSS, you’ll ensure that the average cost of your ELSS units gets averaged out neatly through the ups and downs of the markets.