Little drops make the mighty ocean. This saying holds true for mutual funds because small, consistent investments over a period of time will provide you a good return. In this episode of ‘Dhan Ki Baat’, we will talk about the advantages of mutual funds, SIP and ELSS.
In the previous episode, we had understood what mutual funds are and what are the different types of mutual funds schemes. In case you missed it, you can read more about it here. In this episode, we will discuss the benefits of mutual funds, what is SIP and how it can help you increase your returns on investments.
Which Scheme Will Suit Me?
This is a basic question that an investor asks before investing in a mutual fund scheme. To know the answer to this question, one must always keep in mind that what is the goal that they want to achieve through this investment.
Be it for a marriage in the family, buying a house or a vehicle or for a foreign trip, decide your goal, fix a timeline by which you wish to achieve it and accordingly, choose the investment plan.
SIP or Lump Sum?
Another doubt that many investors face is, should they go for a Systematic Investment Plan (SIP) that allows them small but regular investments every month, or should they opt for a lump sum investment in which case, the investor makes the entire investment all at once.
The benefit of SIP is that in case of market fluctuation – be it gold market, equity market or interest rates – a long-term systemic investment will be beneficial. If the markets are on the rise, your investment amount will be low. If markets are facing a drop, your investment will be high.
Hence, for salaried employees, it’s beneficial to have an SIP investment over lump sum. If you have enough money for lump sum, make sure you make the investments in debt funds which over a period of time, you can transfer to equity mutual funds using systematic transfer plan.
What Is ELSS?
ELSS stands for Equity Linked Savings Scheme. Under this scheme, you invest directly into the share market. But the catch is that your investment is locked in for a period of three years. In other words, if you have made the investment you can’t withdraw that money for next three years irrespective of the rise or fall in the market.
After understanding all the complicated terms, you might say that my question still remains unanswered, which scheme suits me? Well, as we said, the scheme we choose depends on the target we set.
If our targets are short-term, that is for 2-3 years, then invest in debt funds. If your targets are long-term, choose SIP schemes. ELSS are good for tax benefits but the lock-in period makes it less preferable to SIP.
(The story was originally published on Quint Hindi)
Video Editor: Ashutosh Bhardwaj
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