Systematic Investment Plan(sip) is a preferred mode of investing in mutual funds. To combat Volatility, Financial Planners suggest to do sip’s in equity funds and this would be applied to elss(equity linked saving schemes)too.
While ELSS investments are locked-in for 3 years, do you know that whole elss sip corpus can’t be redeemed after 3 years!Do you know the reason why?
The Reason why you can’t redeem the whole amount after 3 Years Lock-in–
Every Sip installment is treated as “Fresh” investment and thus every sip installment counts as a new investment.
As ELSS investments are locked-in for 3 Years, the 1st sip amount only be redeemed after 3rd year completion. The 2nd month sip amount would be redeemed after 38th month(36 months lock-in+2nd sip installment amount) and the 3rd month sip installment would be redeemed after 39th month and so on—
So, while doing elss sip’s be prepared to hold for more time until the completion of 3 year lock-in for each and every sip installment.
This lock-in also helps to stay in the market for the long-run which would benefit to earn huge corpus as your amount is kept in the market for long-term.
If you need urgent cash after 3 years lock-in, do “Lumpsum” instead of sip, but it would be a risky bet. As no one would predict the exact bottom and exact peak in any market condition, financial advisors suggest to do sips.
But if you feel it is at the best levels to invest as the market corrected, invest lumpsum as per your risk appetite at that market point. It is at your own risk!
But if you wish to do sip in elss, hold every sip installment to complete 3 Years.