ELSS Vs SIP: 5 Major Differences

 ELSS Vs SIP: 5 Major Differences

Both ELSS and SIP are crucial concepts related to investments   covered under mutual funds.

The former, however relates to a category of mutual funds while the latter is solely a mode of investment therein.

Juxtaposing ELSS and SIP thus seems impractical as either of them are distinct in themselves.

Nevertheless, being pivotal to finances education, their lucid understanding happens to be essential.

What is ELSS scheme?

ELSS is an acronym for Equity Linked Savings Scheme.

These are a type of equity mutual fund schemes. The respective firm invests 80% of its pooled assets in equity.

Investors cumulate capital in the scheme through SIP or Lump sum mode of investment while in return get ownership proportionate units.

Investment in equities implies that enterprise lays out money primarily in stocks of companies.

Based on the size of these companies’ equity funds are classified as small- cap, mid- cap and large- cap equity funds.

What is SIP?

SIP stands for Systematic Investment Plan. It refers to a method of investment in which a fixed amount is deposited regularly. Based on term of investment in the scheme, SIPs are monthly, weekly, half- year, yearly and so on.

One can invest in almost any mutual fund through SIP. Herein, a predetermined amount is regularly invested in the company.

This fixed mandate is automatically deducted from the bank account of an investor as per the set timeline for investment.

A person can invest in equity mutual funds with mandate as low as Rs. 500.

Another method of investment is Lump sum mode. It allows to make one- time investment of high capital in mutual funds.
So far, it has been clarified, that ELSS and SIP are two distinct concepts, thus cannot be compared.

Characteristics of ELSS and SIP:

Lock- in Period:

[for ELSS]:

Equity linked savings scheme have a lock- in period of three years.

This means that investment in the mutual fund cannot be redeemed for three years.

ELSS allows investment through both modes, SIP and Lump sum.

If the amount is invested through SIP mode, then the mandate would be eligible for retrieval after 3 years from corresponding date of investment.

{for SIP}:

There is no notion of Lock- in period for SIP being a mode of investment.

The investor has to deposit the predetermined amount on already set dates.

It can be weekly, monthly, half- yearly or annual.

If investors fail in doing so, as per the specific rules and regulations of a particular AMC may be charged penalty.

Lock- in of SIP depends on the mutual fund being opted. If the scheme keeps a lock- in alternative, investment through SIP would be locked.

Investment through SIP mode:

ELSS are one of the categories of mutual funds.

However, SIP or Systematic Investment Plan is merely a method of investment by which we can put in our capitals regularly.

Both SIP and ELSS have their advantages.

Also Read – What Is The 15×15×15 Rule In Mutual Funds?

Benefits of ELSS

Saving tax

Equity Linked Savings Scheme is popularly known as Tax Saving Scheme.

Benefit of liberation from taxes makes ELSS a wide preferment for many investors.

Investing in ELSS discounts taxation charges on capital up to Rs. 1,50,000.

Nonetheless, taxes are practically levied on higher amounts, i.e., more than Rs. 1,50,000 in ELSS type- mutual funds.

Security of Lock- In

Lock- in provision in ELSS compels the investor to continue the investment consistently in the fund, irrespective of the market conditions.

Once a person is regular in his investments and endures the period of maturity, he/ she will get higher returns and benefits.

The case would be contrary mutual fund scheme does not hold lock- in service.

Here, after certain capital invested or sometime later, due to no lock- in, the person could retrieve the investment in a relatively shorter period.

While long- term investments give higher returns, short- term investments do not provide satisfactory growth of money.

Benefits of SIP

Inculcates disciplined investment

SIPs bind a person to a commitment of certain amount within stipulated time limits, in a particular mutual fund scheme.
Thus, it makes a person regular and directed investor.

Averaging Rupee Cost

Market inflation or deflation does not incite any fluctuation in our predetermined mandate.
It remains same and fixed. If the NAV of mutual fund lowers, one can attain more units. Hence, it facilitates in gauging Rupee cost.


ELSS and SIPs are two different concepts that recur significantly in the mutual fund arena.

ELSS is a type of mutual fund whereas SIP is a mode of investment in mutual fund schemes.

Here, the former provides taxation benefits and higher returns, while the latter makes you a disciplined investor.

Awareness of the above concepts adds to the knowledge of a person which makes him an intelligent investor.

Team R Wealth

Team R Wealth

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