The saddest part about getting the salary debited in your bank account is that it is taxed monthly. Yes, paying taxes sucks because who wants to give a decent amount of their hard-earned money to the government? You would rather spend it on movies and fancy dinners, wouldn’t you? But as per government rules, any individual whose annual income is more than Rs. 2.50 lakh is eligible for tax deductions. To save taxes, there are several investment schemes available in the market. But if you have a high-risk appetite, you can invest in ELSS because it doesn’t just help you claim tax benefits; it gives you a chance of gaining some decent returns from your investment.
But if you decide to invest in an ELSS scheme, should you do it via a Systematic Investment Plan (SIP) or a one-time investment? Let us find out.
Before that, let us find out what exactly ELSS is and also understand the difference between SIP and one-time investment:
ELSS: Equity Linked Saving Scheme or ‘ELSS’ as we know it is a tax saving scheme under the Indian Income Tax Department’s Section 80C. If you invest up to 1.5 lakh rupees in an ELSS scheme, you can claim up to Rs. 46,800 tax benefits. Also, ELSS offers a great chance of doubling your money if you invest it in the long run.
SIP: A Systematic Investment Plan, or ‘SIP’ as the term suggests, offers a systematic way of investing money at decided intervals. One of the SIP benefits is that an investor can choose to invest monthly, quarterly, or every six months, depending on finances’ availability. Sometimes, an investor doesn’t have the entire amount that needs to be invested annually. In such scenarios, SIP comes to the rescue as you can invest little money at regular intervals instead of paying the whole amount simultaneously.
One-time investment/Lump sum: A lump sum or one-time investment is a situation where the investor pays the entire amount at the start of the investment cycle.
Should you invest via SIP or Lump Sum?
Both SIP and lump sum have their perks and cons. The primary factor that distinguishes the two is the varying amount of risk. When investing in SIP, your large sum stays secured as you are investing just a tiny portion of your entire investment amount, thus leaving you less exposure to risk. On the other hand, when you support the whole amount in one go, you expose your total amount to market volatility. So, depending on your risk appetite, choose to go with SIP or a one-time investment.
Another aspect to keep in mind is the ROI factor. Though lump-sum investments carry higher risk, they offer a potential chance of gaining better returns in favorable market conditions. On the other hand, when you invest through SIP, you incur lower losses in a volatile market as you support at periodic intervals.
So what will it be when you invest in an ELSS, a SIP, or a one-time investment? Whichever payment method you choose, while choosing an ELSS, you should opt for a Long Term Equity scheme. So if you want to increase your chances of fetching a decent amount of returns from an ELSS investment and save tax simultaneously, you should consider investing in a Long Term Equity Growth fund scheme.
