How To Invest In ELSS - SIP Or Lump Sum?
Now that we have a fair idea about what ELSS is? In this unit, let's see how we invest in it?
ELSS gives you the option to either make lump-sum investments or to invest through a Systematic Investment Plan (SIP). Let us now understand the advantages and disadvantages of each of these modes of investment.
Lump sum investment:
Many investors go for investing in ELSS in a lump sum. Since these funds can get them good tax savings, they try to quickly invest in ELSS in the last 3 months of the financial year, especially if they have not done the section 80C investments in the first 9 months of the year. This can often be dangerous, especially if the markets are very high when the investment is made.
Since the investment is generally made in a single transaction, the entire purchase happens at a high rate. If the markets come down after this, the investment starts yielding losses. Mutual funds experts say that lump sum investment in ELSS is ideal only for those who are investing for a really long term like 10 years.
Systematic investment plan:
Investing in an ELSS through a SIP is the ideal option for most investors, especially the small ones. These are beneficial for many reasons:
Since the investments are staggered over the entire year, the purchases of the ELSS units happen at different prices (NAV). In this way, the cost of investment gets averaged out and you do not end up getting stuck at a very high rate.
Systematic Investment Plans, as the name suggests, require you to invest systematically on predefined dates. This promotes the habit of disciplined investing, which is much better than investing sporadically and haphazardly.
Because of these obvious benefits, it is highly recommended to go for a SIP in ELSS instead of investing in a lump sum.
One thing you need to remember here: In case of a SIP, every investment will be subject to a three-year lock-in. That means that the three years will be calculated from the actual date of each installment, and not from the date on which the first installment was paid.
For example, if you invest rupees 1000 every month in an ELSS for six months, the lock-in will be calculated as follows: