Equity Linked Savings Scheme (ELSS) is a type of mutual fund that provides tax benefits under section 80C of the Income Tax Act. Investing in ELSS allows you to save tax up to Rs. 1.5 lakhs annually while also generating wealth over the long term. ELSS funds invest predominantly in equities, making them ideal for long-term wealth creation. Read on to find out more about how to earn your first crore through ELSS.
Learn the benefits of investing in ELSS
- Wealth Creation: ELSS funds invest majorly in equities, which have the potential to deliver inflation-beating returns over long periods. This enables wealth creation over the long run.
- Lowest Lock-in: ELSS funds come with a 3-year lock-in period, which is the lowest among the options under section 80C like PPF, NSC etc. This provides flexibility to withdraw funds after 3 years.
- Transparency: ELSS schemes have high transparency levels as they are regulated by the Securities and Exchange Board of India (SEBI). This ensures good governance and protection for investors.
- Low Cost: ELSS funds have low expense ratios, making them a cost-efficient investment option compared to traditional insurance policies.
Invest regularly to create wealth
To create long-term wealth, it is important to invest systematically in your chosen ELSS funds. Here are some tips:
- Start early. Begin investing in ELSS when you are young to benefit from compounding over long periods.
- Invest annually. Make it a habit to invest the maximum amount of Rs. 1.5 lakhs in ELSS yearly to claim tax deductions and build a retirement corpus.
- Use SIPs. Invest through Systematic Investment Plans (SIPs) to invest small, regular amounts instead of lump sums. This averages costs and evens market fluctuations.
- Increase SIPs annually. Raise your SIP amounts by 10-20% each year to account for salary hikes. This will exponentially grow your investment.
- Never stop SIPs. Continue SIPs irrespective of market conditions. Stopping SIPs during market falls may dent wealth creation.
- Remain invested. Do not withdraw after the lock-in ends. Remaining invested for longer periods will enable your funds to grow significantly.
Be patient and persistent
Creating substantial wealth takes time and discipline. Here are some tips:
- Have realistic expectations. ELSS investing is for the long-term. Expect 10-15% CAGR returns over extended periods.
- Ignore short-term volatility. Markets will be volatile in the short run – do not get affected by this and stop SIPs.
For example, consider Rahul, 25 years old, who wishes to create a Rs 1 crore retirement corpus when he turns 60. He plans to invest Rs 1.5 lakhs annually in the scheme to also avail ELSS tax benefits. Using an online ELSS calculator, he finds that if his investments grow at 12% CAGR, he can create a corpus of Rs 1.03 crores by age 60 just by investing the maximum amount in ELSS each year. This shows the power of starting ELSS investments early and investing regularly to create wealth.
By starting early, investing regularly in the right ELSS funds, and persisting patiently for long periods, you can potentially achieve your first 1 crore target. Follow this beginner’s guide to ELSS investing.