A mutual fund is a professionally managed company that collects money from many investors and invests it in securities such as stocks, bonds and short-term debt, equity or bond funds and money market funds.
Mutual funds are a good investment for investors looking to diversify their portfolio. Instead of betting everything on one company or sector, a mutual fund invests in different stocks to try to minimize portfolio risk.
The term is typically used in the US, Canada and India, while similar structures around the world include the SICAV in Europe and the open-ended investment firm in the UK.
Should I invest in ELSS via SIP or Lumpsum?
Whether you invest in ELSS via SIP or lumpsum depends on when and why you are investing. If you’re looking to save on taxes at the end of the financial year, lump sum investing is your only choice. But if you are investing at the beginning of the financial year, you can invest in a lump sum or via SIP. ELSS offers a tax benefit and also has the growth potential of stocks.
Investing in ELSS through SIP has two advantages. First, risk is reduced by spreading investments over the course of the year. Secondly, you can get a better average price for your units by investing in DIVERSIONNAV during the year than investing in lumpsum at a certain point in time due to the average cost of rupees. Third, regular investments made in small amounts do not pinch your portfolio compared to a flat rate investment, but you need to make sure that the total amount invested during the year is the same as what you would like to allocate to ELSS.
Since ELSS funds have a lock-in period of 3 years, if you invest today, you can only take your money out after 3 years in case of a lump sum investment. The blocking period is also applicable to each SIP payment. If you want to withdraw the full amount invested in 12 months, you will have to wait until the last SIP installment has completed 3 years.