ELSS vs SIP

Differentiating between ELSS and SIP can be challenging because they serve complementary roles in an investor's portfolio. ELSS focuses on tax-saving and potential wealth creation through equity exposure, while SIP provides a disciplined approach to investing, ensuring consistency. When used together, ELSS through SIPs offers investors a powerful tool for tax-efficient wealth creation while creating financial discipline.

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SIP Benefits
Start SIP with as low as ₹1000
Start SIP with as low as ₹1000
No hidden charges
No hidden charges
Save upto ₹46,800 in Tax
Save upto ₹46,800 in Taxunder section 80 C
Zero LTCG Tax
Zero LTCG Tax^ (Unlike 10% in Mutual Funds)
Disciplined & worry-free investing
Disciplined & worry-free investing

  • Insurance Companies
  • Mutual Funds
Returns
Fund Name 3 Years 5 Years 10 Years
Top 200 Fund Tata AIA 23.15% 27.3%
19.47%
View Plan
Virtue II PNB Metlife 21.78% 23.76%
17.76%
View Plan
Pure Equity Birla Sun Life 18.83% 19.17%
16.34%
View Plan
Growth Opportunities Plus Fund Bharti AXA 17.85% 18.97%
15.65%
View Plan
Pure Stock Fund Bajaj Allianz 17.49% 18.39%
15.52%
View Plan
Blue Chip Fund HDFC Standard 14.09% 14.83%
12.85%
View Plan
Growth Super Fund Max Life 14.38% 15.26%
12.72%
View Plan
Multi Cap Growth Fund ICICI Prudential 15.63% 13.98%
12.51%
View Plan
Equity Fund SBI 14.73% 14.91%
12.42%
View Plan
Growth Plus Fund Canara HSBC Oriental Bank 12.78% 12.27%
10.7%
View Plan

Updated as on February 2024

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  Returns
Fund Name 5 Years 10 Years RSI
Active Fund QUANT 27.80% 23.96%
21.08%
Large and Mid Cap Fund QUANT 23.27% 22.69%
19.64%
Flexi Cap Fund PARAG PARIKH 23.90% 20.22%
20.15%
Large and Mid Cap Fund EDELWEISS 20.32% 18.01%
16.76%
Equity Opportunities Fund KOTAK 20.22% 18.98%
17.44%
Large and Midcap Fund MIRAE ASSET 21.11% 24.56%
23.01%
Flexi Cap Fund PGIM INDIA 21.48% -
15.13%
Flexi Cap Fund DSP 19.48% 17.73%
15.82%
Emerging Equities Fund CANARA ROBECO 18.91% 22.92%
20.84%
Focused fund SUNDARAM 18.22% 16.55%
15.16%

Updated as of June 2024

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What are ELSS Funds?

ELSS, or Equity Linked Saving Scheme, are a type of funds in India that offer tax benefits along with the potential for high returns. They are essentially investment products that pool money from multiple investors and invest it in various stocks and equity-related instruments.

Features and Benefits:

  • Tax benefits: Investments in ELSS funds qualify for tax deductions under Section 80C of the Income Tax Act, 1961. This allows you to reduce your taxable income and potentially save a significant amount of tax.

  • Equity investment: ELSS funds primarily invest in equities, which offer the potential for higher returns compared to other tax-saving instruments like fixed deposits or Public Provident Fund (PPF).

  • Lock-in period: ELSS funds come with a lock-in period of 3 years.

  • Potential for high returns: ELSS funds have the potential to generate higher returns compared to other tax-saving instruments over the long term.

  • Disciplined investing: The lock-in period of 3 years encourages disciplined investing and helps you stay invested for the long term, which is crucial for maximizing returns in equity markets.

What are SIPs?

SIP stands for Systematic Investment Plan. It's a popular method for investing in various financial instruments like ULIPs, mutual funds, stocks, and retirement accounts. Here's how it works:

  • Regular investments: Instead of investing a lump sum, you contribute a fixed amount at specific intervals, usually weekly, monthly, or quarterly.

  • Disciplined approach: SIPs encourage regular saving, building financial discipline and consistency.

  • Flexibility: You can start with a small amount and adjust the investment amount as your financial situation changes.

  • Potential benefits: SIPs offer the potential benefits of:

    • Rupee-cost averaging: By investing at different market points, you average out the cost per unit, potentially reducing the impact of market volatility.

    • Compounding: As your investments grow, you earn returns on the returns, leading to accelerated growth over time.

What are the Benefits of ELSS?

  • Tax Benefits: ELSS qualifies for tax deductions under Section 80C of the Income Tax Act, allowing deductions of up to ₹1.5 lakh, thus reducing tax liability significantly.

  • Short Lock-in Period: With just a three-year lock-in period, ELSS offers quicker access to funds compared to alternatives like PPF or fixed deposits.

  • Lower Long-Term Capital Gains Tax: ELSS investments enjoy lower tax rates, with gains up to ₹1 lakh exempt from tax and any exceeding amount taxed at 10%.

  • Potential for High Returns: Investing in the stock market, ELSS offers the potential for higher returns, beneficial for long-term wealth creation.

  • Compounding Advantage: Regular investments in ELSS leverage compounding, accelerating growth over time.

What are the Benefits of SIPs?

  • Discipline and Consistency: SIPs foster financial discipline and consistency by encouraging regular saving.

  • Rupee-Cost Averaging: By investing fixed amounts at regular intervals, SIPs help average out unit costs, reducing the impact of market volatility.

  • Affordable Investment: SIPs allow starting with small amounts and increasing investment gradually with income growth.

  • Compounding Power: Regular contributions to SIPs benefit from compounding, accelerating long-term growth.

  • Convenience: Automating the investment process, SIPs eliminate the need for timing the market or manual investments, allowing focus on other financial planning aspects.

ELSS vs SIP

While often compared, ELSS and SIPs are not directly comparable. Instead, they work together to offer a comprehensive investment strategy:

ELSS is a type of fund that invests primarily in stocks. SIP is a method of investing that allows you to invest a fixed amount at regular intervals.

The key takeaway:

  • You can invest in ELSS through SIPs, allowing you to:

    • Start with a small initial investment and gradually increase over time.

    • Benefit from tax deductions offered by ELSS.

    • Leverage the compounding power of regular investments.

This combination of tax savings, discipline, and growth potential makes ELSS with SIP a powerful tool for long-term wealth creation.

How to Calculate Returns on Your ELSS SIP?

You can easily estimate your potential returns using a SIP calculator. An SIP calculator is an online tool that helps you estimate the potential returns on your investments made through SIPs. By inputting the relevant details into the SIP calculator, investors can get a clear picture of the projected returns over time, helping them make informed investment decisions and plan their financial goals effectively.

Conclusion

Combining ELSS with SIP offers investors a potent strategy for tax-efficient wealth growth and disciplined investing. ELSS provides tax benefits and equity exposure, while SIP ensures consistency and mitigates market risks. Together, they allow for gradual investment increase, small initial investments, and long-term wealth accumulation, highlighting the value of diversified investment approaches for achieving financial goals.

+For Mutual Fund midcap category Returns https://www.morningstar.in/tools/mutual-fund-category-performance.aspx & for Insurance midcap fund category Returns- https://www.morningstar.in/tools/insurance-fund-category-performance.aspx
*Past 10 Year annualised returns as on 01-12-2023
*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

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