Many people have a goal like that – to have Rs 1 crore corpus someday. Its another matter whether it would sufficient or now (read why here). But most Indians focus more on tax-saving that anything else in their financial lives. And in India, ELSS is one very popular option among the young tax-savers. The best part is that being an equity-oriented product, ELSS has a good potential for inflation-beating solid returns in the long term.
A couple of things you need to understand about ELSS funds.
First, there is no limit to the money you invest every year in ELSS funds. It is only that Rs 1.5 lakh is the upper limit for the tax exemption that you can claim under Section 80C in a financial year. So you can invest as much as you want in ELSS funds but you will only get a maximum of Rs 1.5 lakh in tax benefits.
Second, it is true that the ELSS has the shortest lock-in period of 3 years among all the tax-saving options. But that doesn’t mean that it’s necessary to redeem your ELSS schemes just after lock-in completion. Given its equity nature, if you can stay invested in ELSS equity funds for 10, 15 or even 20 years, the advantages can be huge and you can create a lot of wealth.
So let’s see how an investor can create Rs 1 Crore corpus just by saving taxes with ELSS funds.
First, it will depend on the tenure you are looking at. So if you want to have Rs 1 crore in 10 years, then you will have to invest more than what you would require if you want to touch the magic figure by say 15-20 years.
Secondly, it would also depend on the expected returns from the ELSS funds over the said period of 10-15-20 years. Since these are equity-oriented products, let’s say they can deliver around 10-12% average annual return over the long term (do check historical nifty returns data).
Now let’s see how much you need to invest to get to Rs 1 crore target in the given number of years:
- To have Rs 1 crore in 10 years, you need to invest Rs 43-48,000 per month in ELSS funds at 10-12%
- To have Rs 1 crore in 11 years, you need to invest Rs 36-41,000 per month in ELSS funds at 10-12%
- To have Rs 1 crore in 12 years, you need to invest Rs 31-36,000 per month in ELSS funds at 10-12%
- To have Rs 1 crore in 13 years, you need to invest Rs 27-31,000 per month in ELSS funds at 10-12%
- To have Rs 1 crore in 14 years, you need to invest Rs 23-27,000 per month in ELSS funds at 10-12%
- To have Rs 1 crore in 15 years, you need to invest Rs 20-24,000 per month in ELSS funds at 10-12%
- To have Rs 1 crore in 17 years, you need to invest Rs 15-19,000 per month in ELSS funds at 10-12%
- To have Rs 1 crore in 20 years, you need to invest Rs 11-13,000 per month in ELSS funds at 10-12%
Note – These are approximate figures. Also due to the 10% LTCG tax on equities, the actual amount that you need to invest in ELSS funds now will be slightly higher.
So this is how you can amass Rs 1 crore in different time horizons. Many people have doubts about various aspects of ELSS funds. So I have written a few articles to address those issues like How many ELSS funds to invest in? and Don’t invest in new ELSS funds every year.
But do note that ELSS have a tax benefit limit of Rs 1.5 lakh per month. If you are investing regularly on a monthly basis via ELSS SIP vs lumpsum, then it means that as soon as you go above Rs 12,500 per month (i.e. Rs 1.5 lakh per year) you won’t get any additional tax benefits. But that is fine. You are planning to reach Rs 1 crore and not maximize your tax savings. But then comes another aspect. If you aren’t getting any additional tax benefits if you invest more than Rs 12,500 per month in ELSS funds, then why invest more in ELSS funds and have a lock-in of 3 years? Instead, you can pick a combination of large-cap funds, index funds, Flexi-cap funds, mid-cap funds amongst many other mutual fund categories to invest the amount above Rs 12,500 per month of Rs 1.5 lakh a year. You may want to read about this here in detail – Should I invest more than Rs 1.5 lakh in ELSS funds?
And these are the required SIP for Rs 1 crore and the exact amounts that you need to invest every month to become an in a way, SIP crorepati in 10, 15, 20 or 25 years.
Many would feel that SIP isn’t good for them and its fine. Some people are quite smart. But in the long-term, equity is the best choice for small investors, i.e. investing via small amounts monthly via SIP in equity mutual funds is the best bet. And since now it is evidently clear about how much to save to have Rs 1 crore in ELSS funds, you too can become a mutual fund SIP crorepati like you have heard in so many SIP success stories. By the way, you can target Rs 1 crore using PPF as well. But given the comparatively lower returns in PPF as it’s a different asset class altogether, you will take a bit longer to save Rs 1 crore using PPF.
Also, if you are curious how much you can make if you invest other SIP amounts every month in equity funds, then here are your answers:
- Rs 5000 per month SIP in mutual funds
- Rs 10,000 per month SIP in mutual funds
- Rs 15,000 per month SIP in mutual funds
- Rs 20,000 per month SIP in mutual funds
- Rs 25,000 per month SIP in mutual funds
- Rs 50,000 per month SIP in mutual funds
- Rs 1 lakh per month SIP in mutual funds
Before I end this article, let me give you another interesting aspect of investing in ELSS funds.
Suppose you are lucky enough to be part of the highest income tax slab of 30% (plus 4% cess). So if you invest Rs 1.5 lakh via Section 80C in ELSS funds, then you technically end up saving a tax of about Rs 46,800. Right? Now, this translates to about Rs 4000 per month in itself. So in a way, by saving some tax by investing in ELSS funds, you have additional Rs 4000 per month that you can invest more. This amount you can invest in other equity funds and create additional wealth. Isn’t it?
And what if you are already exhausting your Section 80C limit by your EPF contributions, home loan repayments, etc.? Then does it make sense to invest more in ELSS funds? Perhaps not. It is far better to invest in other equity fund categories that are open-ended and without any ELSS like a 3-year lock-in. So, if you no longer need to invest in ELSS to save taxes, you can shift to Flexi-cap funds or large-cap funds or mid-cap funds.
That’s it about using ELSS funds to get Rs 1 crore someday.
But I would still say one thing. Figures like 1 crore are pretty attractive for us Indians. But when it comes to your life, you need to have a sufficient amount of money at the right time for each of your important goals like children’s education, retirement, house purchase etc. Only then you will live a fulfilling financial life. Just targeting random figures may or may not be very useful. And I have been quite vocal about the idea of goal-based investing for years now. For most people, it makes sense to identify their real financial goals and invest in them properly. So go ahead and please find out your financial goals first (use this Free Excel sheet for Goal Planning), understand how much you need to invest for those goals and then do it.
And if you are not sure about whether what you are doing is right or not, then take professional help and get yourself a solid financial plan. This is the best and highest probability path to achieve your financial goals.
So that was about how to save Rs 1 Crore using ELSS funds that help you save taxes and generate good long-term wealth as well. I hope you now have answers to questions about Can I invest in ELSS mutual funds to create a corpus of Rs 1 crore?