SIP or Systematic Investment Plan is a process which involves a certain amount of money that is invested at regular basis, i.e., daily, weekly, or monthly. As a result, the savings, at last, turns into a huge amount. It is considered to be the discipline mode of investment if appropriately invested.
ELSS (Equity Linked Saving Schemes) coming under Sec 80C of Income Tax Act 1961. ELSS offers an individual or HUF is allowed for a deduction from their total income of up to 1.5lacs. And the investors can invest it through SIP only.
There are mainly 4 reasons why you should invest in tax saving mutual fund SIPs:
- Starting investment early. Taxpayers start spending at the end of the financial year, which is considered to be a bad investment and tax-planning system. Investing towards the end may lead to putting a lump sum amount of money that creates a high risk of marketing time. Hence, one should pay early and invest through SIP in ELSS to get benefits from the schemes.
- Lowest lock-in period. All tax saving investments usually comes with a mandatory lock-in period. ELSS provides a three year lock-in period. So investors can sell the investment after 3 years. Hence, investors don’t have to stay invested for a long time.
- There is no maturity date. Unlike other investments like PPF which comes with a maturity date of 15 years, ELSS has none. An investor can keep on investing in ELSS through SIP as long as he wants without worrying about any risks.
- Investment can be made after three years even. Investing in ELSS with a time horizon of 5-7 years, one can get good returns. After the lock-in period expires, the ELSS offers a tax break. It can also break inflation in the long run as well as generate high returns. An ELSS is better as it offers both dividend and growth options.
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