ELSS VS SIP – All You Need To Know About It

When we think about mutual funds, the first things that come to mind are equity-linked savings schemes (ELSS) and systematic investment plans (SIPs). However, it isn’t easy to compare the two because ELSS is a separate investment vehicle, whereas SIP is a method of investing in ELSS or another mutual fund.

Mutual funds have proven time and time again to be a secure bet, particularly for long-term investors. Depending on the investor’s risk profile or investment purpose, mutual funds offer a broad array of investment alternatives. One of the benefits of mutual funds that fall under the ELSS category is saving money on taxes. SIPs are another significant phrase in mutual fund investing. Many investors have been perplexed by the differences between ELSS and SIPs.

What is ELSS?

ELSS refers to the Equity Linked Savings Scheme, a tax-advantaged investment vehicle. The fund typically invests in stocks with a lower turnover rate than traditional equity funds. You can save up to Rs. 46,800 per year if you invest Rs. 150,000 in ELSS. That amount reduces your taxable income.

The policy, which went into effect on January 1, 2006, attempts to incentivize mutual fund investments in the securities market. The scheme’s exclusions are included in Section 80C (1) of the Income Tax Act of 1961. ELSS offers high profits at low risk. Deductions are also available under Section 10(38) of the Income Tax Act of 1961.

What is SIP?

SIPs (Systematic Investment Plans) are mutual fund investments rather than a separate fund category like ELSS. Every mutual fund offers investors the choice of investing in a flat payment or a systematic strategy. This systematic strategy allows investors to invest a predetermined amount in any mutual fund scheme at predetermined intervals.

Monthly, weekly, or half-yearly intervals can be used. Investors can start with a small amount of money, such as Rs. 500, and progressively increase their portfolio over time. Standing directions to their bank account might be used to set up these regular contributions towards money.

Difference between ELSS and SIP

Lock-in Period

The minimum lock-in period for ELSS funds is three years. The same notion of lock-in duration applies when an investor contributes to ELSS funds through SIPs. When an investor fails to pay their SIPs on time, the fund house can impose a penalty based on the criteria.

Tax Benefits

The critical benefit of ELSS funds is the tax benefit. Investing in these funds can result in a tax cut of up to Rs.1,50000 for investors. SIP investments can also generate a tax benefit if made in ELSS funds and not in any other funds.

Switch Funds

Mutual funds allow you to withdraw from the fund at any time. This functionality is available for SIPs as well as lump sum investments. This benefit is not accessible in the case of ELSS funds, however. Investors cannot exit the fund until the three-year lock-in period has expired.

Rupee Cost Averaging

The primary advantage of investing through SIPs is the benefit of rupee cost averaging. Investing in mutual funds through SIPs has a lower average cost over time than investing in a flat sum. Also, because SIPs are continuous, investors can obtain more units of the fund if the NAV falls, and if the NAV rises, the value of their investment increases.


The only tax-advantaged mutual fund is the ELSS (Equity Linked Savings Scheme). Because the investment is made in monthly payments rather than a lump sum, it is the only tax-saving SIP that falls under Section 80C of the Income Tax Act. It is securities and hence can reward investors with higher returns, but it also has a three-year lock-in period.

Financial advisors recommend investing for a more extended period to achieve larger returns with lower risk. ELSS is a good option for investors looking for capital growth and tax savings. It can provide larger returns than FDs, PPFs, and other investments, but it requires a higher risk appetite from investors.