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Mutual Fund Investments are a great way to save for the future and enjoy tax benefits. ELSS offers both capital appreciation potential and income support. While SIP allows investors to make regular investments into mutual funds over time. In this article, let’s compare ELSS Vs SIP to see which one is a better option to invest your money.

What is ELSS?

ELSS stands for Equity Linked Savings Scheme, which is an investment instrument for tax saving. The scheme invests primarily in stocks with lower volatility than traditional equity funds. If you invest Rs. 150,000 in ELSS, you can save up to Rs. 46,800 every year. It reduces your taxable income by that amount.

Introduced on 1st January 2006, the scheme aims at providing incentives for investments into the securities market through mutual funds. Section 80C (1) of the Income Tax Act, 1961 incorporates the exemptions of the scheme. ELSS provides returns at low-risk levels. It also offers deductions under Section 10(38) of the Income Tax Act, 1961.

What is SIP?

SIP, also known as a Systematic Investment Plan, allows investors to invest a small amount of money on a periodic basis. You can invest frequently and earn better returns through SIP than the lump sum methods of investing. By investing in a mutual fund through a SIP, you can gradually grow your wealth over time. SIPs allow you to invest small amounts on a periodic basis. You can opt for weekly, monthly, quarterly, or bi-annual, depending on your preference as an investor. Investing through SIP provides you the benefits of compound interest. It means when your money earns returns, you reinvest the gains. The total amount then grows by earning more. 

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ELSS Vs SIP – What is the Difference Between ELSS and SIP?

As discussed above, ELSS is a long-term tax-saving instrument and you can invest in it through a SIP. It simply means SIP is a method through which you are investing in any given scheme regularly. The following comparison of ELSS Vs SIP will help you understand them better:

It is an investment instrument that helps you generate high returns and save taxes.It is only an investment method that helps you save in a disciplined way. 
You can enjoy a tax deduction of up to Rs. 150,000 in a year.The tax deduction is only applicable if the investment is done in ELSS.
It has a lock-in period of 3 years.No lock-in period except for investments in ELSS
The switch option is available only after the lock-in period is over.The switch option is available if an investment is not being made in ELSS.
Tax saving is a major benefit of ELSS.Rupee cost averaging is a major benefit of SIP.