Invest in savings schemes linked to shares? Use the SIP route
It is common for investors to invest a lump sum in tax planning funds as the financial year comes to an end. However, a better alternative to flat-rate investment could be to spread this investment throughout the year by investing in the ELSS through a systematic investment plan (SIP).
1. Is a SIP allowed in ELSS?
ELSS is a diversified capital fund that qualifies for tax exemption under section 80C of the Income Tax Law. SIP is a mode of investment that allows 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 at a predetermined frequency, which brings an element of discipline to the investment. Investors can also choose between growth plans and dividends when investing through SIP.
2. How long does it take to start a SIP in ELSS?
To start a SIP, investors must complete a form and send it to the fund house along with the SIP mandate, thus registering the SIP. This form is available on the MF website and can be easily downloaded. Alternatively, investors can contact a distributor for it. It usually takes a bank between 15 and 30 days to register a SIP mandate.
3. What should be the possession of a SIP?
While there is no mandatory tenure for a SIP, it is recommended that a SIP have a tenure consistent with its investment objective. Investors who did not start at the beginning of the year have the option of paying a lump sum to compensate for lost fees. Fund houses generally stipulate a minimum period of 6 months for a SIP. SIPs can be done for periods of 1 year, 3 years or investors can also choose the perpetual option. However, when investing in an ELSS fund, one must remain invested during the 3-year blocking periods.
4. Does SIP in ELSS have any advantages?
One of the biggest advantages of a SIP in an ELSS fund is that it avoids the last minute rush of investing. The help of SIP to spread the investments throughout the year thus averaging its cost. ELSS investments of up to 1.50,000 can be claimed as deductions per financial year.
5. What is the blocking period for the investment?
All investments in an ELSS have a blocking period of three years from the date of investment. Therefore, each installation of an SIP ELSS will be blocked for three years. An SIP installation of 10,000 per month began on February 1, 2018 and will be blocked until January 31, 2021. The second installation will be blocked until February 28, 2021 and so on.
6. Are flat-rate investments allowed in a continuous SIP?
Yes, you can add lump sum investments during the year in the same scheme in which you have a SIP. For this, you must complete an additional purchase form and mention the amount of the flat-rate investment. The SIP will continue to run with the monthly fee that it had originally chosen.
Mutual fund investments are subject to market risks, read all documents related to the scheme carefully.
Nidhi Sampat, Marketing Manager, 7506923344, [email protected]