Mutual funds have been a general topic of discussion amongst the masses. But many haven’t put their money in any of these funds as they are related to the share market and are completely exposed to its risk. But there is a new way using which you can invest in a mutual fund without much exposure to the market risk. This way is called SIP or systematic investment plan. SIPs allow you to invest a very small amount every month which is suitable for employees as they cannot invest huge amount at once.
The financial experts advise investors to go for SIPs in ELSS mutual funds (equity-linked savings scheme). Therefore, investors do not have to rush at the last minute to get a lump sum amount to invest in tax-saving funds and they can also spread their investments through the year.
What exactly is a SIP in ELSS Mutual Funds??
ELSS is a type of diversified equity mutual fund. This qualifies for tax exemption under Section 80C of Income Tax Act. You, as an investor, will have the option to start investing in this SIP of a certain amount in such mutual funds for a fixed duration.
You should take advantage of SIPs by investing a small amount every month. You, therefore, get to participate in the share market without much trouble and also learn how to invest in a secure way. You can choose the growth or the dividend plan.
What is the duration required to start a SIP?
The open-ended ELSS Mutual Funds schemes allow you to make your investments through SIPs. Some fund houses allow you to choose any day in a month for SIP. You just have to fill an application form along with the SIP and ECS instructions and then submit it to that fund house. The bank will take anywhere from 21 to 30 days to register your ECS mandate. SIPs can also be set up online.
What is a good time period that you should choose?
A SIP should be for minimum one year as you want to construct your investments over the entire financial year. Some fund houses require a minimum time period of six months for a SIP. You can go through a SIP for any time period that you want or you can even choose the perpetual option that means your SIP will continue until you give an instruction to stop it.
How long is the locking period?
In this specific case of ELSS Mutual Funds – SIP, your every installment will be locked for 3 years. Therefore, if you start a SIP of Rs 2000/month from 1st of July 2018 for just a year, then you will be able to withdraw your first installment in July 2021 and your second installment in August 2021 and so on.
Is it possible to add a lump sum amount to a SIP after a while??
You have the option to add a lump sum amount to the same scheme in which you are running your SIP. This will not affect your regular SIP in anyway.
Hope you found this post helpful. For further queries or suggestions, please leave a comment below.