Difference Between ELSS and SIP Investments | AU Small Finance Bank
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What is the Difference Between ELSS and SIP Investments?

    While mutual funds are probably one of the simplest types of investments, a lot of amateur investors find it challenging to understand the nitty-gritty of mutual funds. Most fledgling investors often struggle to understand the meaning of terminologies. For instance, understanding the difference between ELSS and SIP is a common dilemma among many. 

    Let us try to understand these terms in detail and avoid confusion. 
     

    What is ELSS?

    ELSS or Equity-Linked Savings Scheme is a type of mutual fund scheme. These are equity-oriented diversified mutual fund schemes that mostly invest in the equity market. What makes them different from other equity schemes is that ELSS tax saving funds are eligible for a tax deduction under Section80C of Indian Income Tax Act. The maximum deduction you can claim under this section is up to Rs 1.5 lakh. 
     
    ELSS tax benefit and long-term capital growth are primary objectives of investing in this type of fund.
     

    What is SIP?

    SIP or Systematic Investment Plan is a process of investing in mutual funds. When you select a mutual fund scheme for your investment, you can either invest a lump sum amount or start a SIP. With tax-saving SIP, you can invest a fixed amount in the tax-saving fund of your choice every month. 
     
    For instance, you can start a SIP in an equity fund or any other fund of your choice. Most funds allow you to start SIP with just Rs.1,000 per month. The SIP tax benefit depends on the type of fund in which you invest.  
     

    Difference Between ELSS and SIP

     
    Here is a quick overview of the differences between the two-
     
     
    ELSS Scheme
    SIP
    What is it?
    A type of tax-saving mutual fund or a product
    A type of investment method or a process
    Security
    Equity-oriented funds
    Any mutual fund investing in any securities
    Tax benefit
    Up to Rs. 1.5 lakhs in a year
    Depends on the type of fund selected, but not exceeding the 1.5 lakh limit
     
     

    Combining ELSS with SIP

    As mentioned above, SIP is an investment method that can be used for any mutual fund. So, you also have the option to start a SIP in top ELSS funds of your choice. In fact, ELSS and SIP can be a dynamic combination.
     
    For instance, you can claim a tax deduction up to Rs. 1.5 lakhs invested in ELSS funds. But rather than investing the entire amount at once, which can be difficult for most investors, you can start a monthly SIP of Rs. 12,500 in an ELSS fund of your choice. This will not only make it easier for you to achieve your yearly 80C investment target of Rs. 1.5 lakhs with ELSS mutual funds but also protect you against market volatility. 
     
    Now that you know the difference between ELSS funds and SIP investment, you are now one step closer to being an astute investor. Browse through our other blogs to know more about mutual funds as your knowledge will play a significant role in the success of your financial life. 
    Know more about other investment options to save tax such as tax saving fd

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