Understanding Mutual Funds | Value Research A concise explanation of what mutual funds, ELSS & SIPs are…
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Understanding Mutual Funds

A concise explanation of what mutual funds, ELSS & SIPs are…

Please let me know the difference between a mutual fund, ELSS and SIP.
- B. Sudhakar Naidu

Mutual fund is an investment instrument that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds and other market instruments. The fund scheme has a stated investment objective based on which investors’ pool in their money. In turn, mutual funds issue units to investors, which represent an equitable right in the assets that the specific fund scheme holds.

There are different types of mutual fund schemes based on their investment objective. For instance, ELSS or equity-linked savings scheme is a type of mutual fund that offers tax savings under Section 80C with Rs 1 lakh limit every financial year on investments and has a three-year lock-in to individual investors.

SIP or systematic investment plan is not a type of mutual fund, but a method of investing in a mutual fund. SIP is a planned investment by which investors invest small sums of money at frequent intervals which could be daily, monthly, quarterly and so on. By using SIP, one can be disciplined and regular with investments without the need to time the market and also gain from cost averaging over time with the benefit of power of compounding.

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