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How to create wealth with ELSS Investment?

How to create wealth with ELSS Investment?

While there are hundreds of investment options in the market, very few of them provide tax-saving benefits. However, there is one which is ELSS – Equity Linked Savings Scheme or commonly known as ELSS funds. If you are one of those investors who want to build a portfolio of 1 crore and above and also want to save taxes using Section 80C of the Income Tax Act, then you can consider this investment option.

What is ELSS?

These funds are equity-oriented funds where 65% of the asset under management of the fund is invested in equity or equity-related investment options. ELSS schemes are tax-saving mutual fund schemes where you can get up to Rs. 150000 of deduction from your taxable income annually as per Section 80C of Income Tax Act, India.

These funds have a lock-in period which is of three years. The benefit of investing in ELSS is not only restricted up to the exemption of Rs. 1.5 lakh under 80C but one can also avail of the capital gain taxation benefit. As it is an equity-oriented fund, so the long-term capital gain tax charged on the profit (above Rs. 1 lakh) is only 10%.

Additional Read: Debunking 9 Popular Myths about ELSS funds

Why you can use ELSS funds to create your 1 crore portfolio?

ELSS funds can be termed as one of the best investment options for building your 1 crore plus portfolio because these funds invest across companies having different market capitalization. This helps in the diversification of the portfolio between various market capitalisation. Moreover, there is quite a flexibility in these funds and they keep on rebalancing the portfolio of the fund as per market changes to reap benefits from the growing opportunities. There is a tax-saving benefit that also helps in boosting the corpus.

How to create the portfolio or corpus of Rs. 1 crore or more using ELSS?

If you are wondering how you can create a Rs. 1 crore portfolio with just investing in ELSS and also you will save tax, here is a brief idea about the same.

Suppose, you earn Rs. 1200000 (twelve lakhs) per annum. So, you fall under the highest income tax bracket of 30%. Now if you invest Rs. 150000 in ELSS every year, then you can save taxes of Rs. 46800 on this income.

Tax:                      Rs. 150000*30%                                           = Rs. 45000

Add:     Health and Educational Cess: 4% * Rs. 45000        = Rs. 1800

Total tax saving                                                                        = Rs. 46800

Now if you invest this tax you saved which is Rs. 46800 every year in the ELSS then your total investment per year would be Rs. 150000 + Rs. 46800 = Rs. 196800

If you assume a return of 11% every year then you can build a corpus of Rs. 1.43 crores in the next twenty years.

Here is how it is done –

ELSS Investment

So, with the help of one investment option only, you can create this portfolio. The primary reason is you are not only saving the taxes but also investing it and the compounding of the investment helps you create this huge corpus.

Additional Read: Unlisted Equity Shares – All you need to know about it

Conclusion

So, you can see it is not that tough to build a portfolio of 1 crore if you invest it in the right investment scheme. By investing in ELSS you not only save taxes, but there is no need for further diversification of the portfolio as well and you can create this huge corpus just by investing the taxes you save every year with the help of ELSS. So if you are looking for investing in tax saving instruments, contact Tata Capital Wealth, our relationship managers and investment product specialist will suggest you the most suitable investment option.

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