Every year tax payers look to invest their money in investment avenues where they can save taxes. One of the popular ways of financial planning is opting for systematic investment plans (SIPs) in equity-linked savings scheme (ELSS) mutual funds. By starting a SIP in ELSS funds you can spread your investment horizon throughout the year. This not only helps in tax saving but also makes you a disciplined investor. In this article, you will learn everything about starting a SIP in ELSS funds.
Let us begin by learning what is SIP in ELSS fund?
What is SIP in ELSS fund?
ELSS funds are the type of equity mutual funds which are eligible for tax exemption under section 80C of the Income Tax Act. Under the ELSS schemes,you can avail tax benefits of up to Rs. 1.5 lakhs in a financial year. Any amount invested in excess of Rs 1.5 lakhs shall not be eligible for tax benefits under section 80C of the Income Tax Act.
Let us now learn about the types of ELSS funds
Types of ELSS Funds
There are two types of ELSS funds: Growth Fund and Dividend Payout.
- Growth Fund
Growth Fund is a fund in which the investors can create long term wealth. Also,at the time of redemption, full value of the fund is realised.
- Dividend Payout
The dividend payout funds can be further divided into two categories Dividend Payout and Dividend Reinvestment. In the dividend payout option, a tax free dividend is received. Whereas in the case of dividend reinvestment, the dividend is reinvested in the form of fresh investment.
Let us now learn why ELSS funds are better than other investment options under 80C.
ELSS Funds vs. Other Investment Options under Section 80C
Even though in the new tax policy the ELSS funds are eligible for long term capital gains, still they are superior to other tax saving options. ELSS funds are equity-based instruments that have the potential to generate handsome returns in the long run. Even after being taxed, ELSS funds provide higher returns than other 80C investments like Unit Link Insurance Plans andPublic Provident Funds.
Let us now learn about how long it takes for a SIP to start.
How Long It Takes For SIP To Start?
The open-ended ELSS schemes allow the investors to start SIP on any day of the month. The investor just needs to fill an application form and ECS mandates, and submit it to the fund house. In general, it takes about 21 to 30 days for the banks to register the ECS mandate. SIP can also be started through online mode.
Let us now learn about what is the locking period for an ELSS SIP.
Locking Period for ELSS SIP
ELSS SIP has a lock-in period of 3 years for every instalment. Like for example, if the SIP of Rs. 10,000 per month starts on April 1, 2019. The first instalment of the SIP shall be locked in till April 2022 and so on. Furthermore, you can even add a lump sum amount to the same scheme in which the SIP is already running. It will have no effect on your regular SIP plan.
Investing in the ELSS funds can be a cumbersome task especially for the beginners. To help the beginners in selecting the right SIP plans and deciding the right ELSS mutual fund scheme, Kotak Securities can be of great help. The experts at Kotak Securities handpick the best performing mutual funds for you after understanding your financial goals and tenure of investment.