ELSS or SIP

Confused??
If you are confused then you are on the right track. You know the basics about mutual fund investment. This article is for people who are not-so-confused after reading the title.

After talking to people about tax planning through ELSS, I often encountered a question from people which goes like this - "So whatever you are telling me is right, but should I do ELSS or SIP??". In this post I am going to answer this question and talk about modes of investment.

Resolving Misconception:
ELSS and SIP are totally different things. ELSS is type of investment; it's a category of mutual funds in which you can save tax. On the other hand SIP is the mode of investment i.e. how you are paying for your investment. In SIP one simply does not pay all amount in one go, but a small amount on regular intervals.

Let's try to understand the difference through an example -
  • Suppose you want to buy a two wheeler vehicle. There are different products available in the market. 
  • We can classify two wheeler vehicles in categories like scooters, utility bikes (Spendor, Unicorn), Sports bikes (Yamaha FZ), Cruiser bikes (Bajaj Avenger)
  • The modes we can pay for bike is direct payment or EMI
  • Thus the types of bikes is different and modes of payment is different
  • Once cannot simply compare 'Sports Bike or EMI'
Similarly, in investment philosophy there are mutual fund categories (ELSS, Large cap, Diversified, etc) and there are modes of investment (SIP and Lumpsum).




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