Here, we are discussing the 4 steps to ELSS SIP
Or, the 4 things that you need to keep in mind when you are investing in ELSS through SIP i.e. Systematic Investment Plan
Equity Linked Savings Scheme is an equity fund
They are eligible for tax deduction under Section 80C
The limit is Rs 1.5 lakh per annum like any Section 80C investment option like PPF and NSC
Systematic Investment Plan is a mutual fund facility where you can invest a pre-determined amount in a scheme of your choice
An SIP in ELSS allows you regularly invest for your tax -savings
You want to get the equity fund advantage since equity funds provide you with high returns in the long term
This is returns come to you in the long-term of 8-10 years and are much higher than alternatives
Among tax-saving investments, ELSS has the potential of delivering higher returns than alternatives
Since most of the alternatives provide interest and provide lower returns since they have lower risk
So, the first thing that you need to do is compare returns. This mean 1-year, 3-year and 5-year returns for different ELSS
Don't pick the hottest or popular ELSS. It is the most common mistake
If things go south, investors are typically clueless about what to do with existing ELSS investment
Being an equity investment, this has to be an investment with a long-term view. It can be a component for long-term investments
This would be for needs like children's higher education and retirement
Suppose, you are investing for retirement and you invested in PPF, ELSS can form a large part since you need to beat inflation
The next step is remembering that each SIP instalment in ELSS is locked in for 3 years
Thus, it is important to be careful about the investments since you are committing to the regimen
You can't suddenly change your mind without undesirable consequences
The third thing or the third step that you need to keep in mind is the SIP date
If you are salaried, that is the date on which your pay should have come in your bank account
If you are self-employed, you need to ensure that money is in your account on that date every month
Fourth step, is the SIP period. This period over which your SIP instalments into the ELSS will be going out
Don't confuse SIP period with the ELSS lock-in period, you can choose your SIP period according to your convenience
After the completion of the the ELSS lock-in period, you need to not necessarily go out of the scheme
If you ELSS investment is not doing well across 1 and 3 year periods compared to benchmarks and other ELSS
Then, take your money to a diversified equity fund that has been consistently performing across 1, 3 and 5 years
It is crucial to remain invested in equities through equity funds
When you stay invested for the 8-10 year period, it is only then you could get the typically high returns
Remember, to get tax deduction from tax-saving investments, it is is the investments made during a financial year that are eligible