ELSS SIP: Best Systematic Investment Plan to Save Tax and Build Wealth

Smart financial planning is one of the basic principles for realising your dreams. For example, if you want to buy a house or luxury car, you need to plan for it early. So, you have to save and then invest the savings intelligently. Always remember that reducing tax liability is a saving too. Now, if you can save tax and create wealth simultaneously, wouldn’t it be icing on the cake it.

Systematic Investment Plan or SIPs are the simplest tool to save tax and create wealth in one go. All that you have to do, is to invest in Equity Linked Saving Schemes or ELSS, which are tax saving schemes of the mutual funds. You can invest in ELSS via SIPs. For ELSS investments using SIPs, the government allows you the deduction of up to Rs. 1.5 lakh from your taxable income. You save more than Rs 45,000 if you are in the 30% tax bracket.

You can start an ELSS SIP with the minimal amount of Rs 500. However, you can increase the amount whenever you want to. To start SIP you have to fill a form, offline or online. In the form you have to give your bank account details for auto-debit. You have the flexibility of choosing the frequency, i.e. weekly, monthly, quarterly, or yearly. And yes, SIP gives you the option of choosing a date too. ELSS SIPs not only save tax but offer you other advantages too. On an average you get returns of nearly 15% over 5 years. Almost more than double that you get on PPF, FD, or NSC investments. These returns help you create wealth.

With a lock-in period of just 3-years, it gives you more liquidity than PPF for example, where the lock-in is 15-years. Advantages don’t end here. Unlike insurance policies or PPF, there are no penalties for missing your installment. You can deposit after the due date and your SIP continues. However, if you miss three consecutive installments, then your SIP gets cancelled and you then have to fill a form again for restarting your SIP. So, you should maintain adequate bank balance on your SIP date.

Now, let us look at your precautions. Since you ELSS SIP investments go into equities, you must assess your risk appetite before investing in this instrument. Once into it, ensure adequate balance in your account on SIP date.