The March 31 deadline is looming. The HR department of your company is asking for investment proofs. A mutual fund distributor keeps calling to make you invest in ELSS funds. With so much to do in such a short time, it is easy for anyone to make an uninformed investment decision in haste. While investing in an equity linked savings scheme (ELSS) in the month of March to fulfill your 80C obligations would be a good idea, you shouldn’t be investing in one go.
SIP is the way to go
It is largely advocated by investment experts that the way to invest in equity mutual funds is through the a systematic investment plan (SIP). An SIP helps you get the benefit of rupee cost averaging. Averaging your cost of acquisition is important because the equity markets are volatile. If you invest at one time in a lump sum, you run the risk of catching a market peak. Using the SIP route allows you to buy mutual fund units at different levels of the market. So, when the markets are low you get more units and vice versa.
But as far as your last minute efforts to save taxes go, it is now too late to start a traditional monthly SIP in an ELSS fund. Most people will now invest a lump sum and even though the markets are volatile, that can still lead to investing at a peak. This is dangerous because if you invest today and the markets suddenly go down drastically tomorrow or even in the coming weeks, you will see a heavy erosion in the value of your investments. Obviously, this is something no one wants. But you do need to invest in an ELSS fund to save taxes. So, what should you do?
The way out
Don’t worry, there is still something you can do to mitigate the risk of investing at a market peak. You can spread your investments over the next 2 and a half weeks. Let’s say you have to invest Rs 50,000 in an ELSS fund to meet your 80C limit. Don’t invest the entire amount on one day. Invest Rs 20,000 this week, Rs 20,000 in the coming week and the final Rs 10,000 in the last week of the month.
This way, you will make sure you don’t catch a peak with your entire investment amount. The markets will be at different levels in the coming three weeks and you will be able to get some benefit of rupee cost averaging. Of course, making three investments means you will have to give three cheques or remember the three dates that you pick to invest. But doing this makes good investment sense and it will be worth the extra time and effort you need to put in.
By the way, the easiest way to invest in a customised portfolio of ELSS funds is by using the new ClearTax tax-saving platform.