Should Investors Opt For An SIP or lumpsum Mode When Investing In An ELSS?

An ELSS is an Equity Linked Saving Scheme that allows investors tax exemption of Rs.1.5 lakhs in a financial year and offers tax savings up to Rs. 46,800 for investors in the highest tax bracket. An ELSS is also referred to as a tax-saving fund. These funds invest a minimum of 80% of the total assets in equity and equity-related instruments. Due to its underlying equity component, it has the potential to cope better with inflation over the long term.

See Related: How Does ELSS Compare With Other Tax Saving Investments? - Mutual Funds & ETFs - Trading Q&A by Zerodha - All your queries on trading and markets answered (

Investors can start investing using an SIP (Systematic Investment Plan) or lumpsum mode of investment. With a lumpsum, investors have the flexibility of withdrawing once the lock-in period of three-year ends. However, with an SIP, each instalment gets locked in as a separate investment for three years and one will only be able to withdraw the first SIP that will get unlocked after 3 years.

How do SIP installments work in an ELSS investment?

Suppose an investor invests Rs.10,000 per month in an ELSS investment. He will be able to redeem the first SIP investment after the lock-in period of 3 years is completed. The same process applies for subsequent instalments as shown below:

Date of investment Total investment NAV (Assumed) Units Purchased Eligible for redemption
01.04.2021 10000 100 100.00 01.04.2024
02.05.2021 10000 95 105.26 02.05.2024
01.06.2021 10000 98 102.04 01.06.2024
01.07.2021 10000 102 98.04 01.07.2024
01.08.2021 10000 110 90.91 01.08.2024

The above illustration is only for explaining the lock-in period in ELSS SIP investments.

On the positive side, an SIP mode of investment has several advantages:

  • Ensures enforced discipline: With an SIP, one invests regularly and brings discipline to their investing process due to the lock-in, thereby negating any need for impulse investment decisions.
  • Averages cost of investment: An SIP buys more units when the markets are falling and less when markets are rising, thereby averaging out the cost of investment.
  • Does away the need to time the market : One does not need to time the right entry and exit point for one’s investments.
  • Flexibility to invest in smaller amounts: Instead of investing Rs.150,000 at a time, you can invest in smaller amounts at regular intervals using an SIP.

Regardless of whether one plans an SIP or lumpsum investment mode, what matters is time in the market. The longer one stays invested, the better the potential for risk-adjusted returns. For investors looking to achieve their long-term financial goals and save tax, these tax-saving mutual funds can be considered a good option.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

Disclaimer: The views expressed here in this Article / Video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The Article / Video has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of the Article / Video should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. None of the Quantum Advisors, Quantum AMC, Quantum Trustee or Quantum Mutual Fund, their Affiliates or Representative shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary losses or damages including lost profits arising in any way on account of any action taken basis the data / information / views provided in the Article / video.

1 Like