ELSS (equity-linked savings scheme) is a scheme that qualifies for a Tax deduction (under Section 80C of income tax act 1961) to a maximum of Rs.1.5 lakh. This fund has the least lock-in period of only 3 years across Section 80C instruments.
It will invest predominantly 80% of the money in stocks with a diversified universe of NSE 500/BSE 500 index across the universe. The power of compounding is very much experienced in this scheme which has the potential to generate wealth over a long tenure.
Compared to fixed-income investments like (PPF, SCSS, NSC, 5 years FD etc…), this fund will create wealth if stayed invested for a longer tenure. Ideally, ELSS investment should be planned every year in such a way that it is tagged to LONG TERM goals like Retirement Corpus, Children education corpus (or) planning a house purchase etc.
Investment can be done by way of a lump sum or on a monthly basis for a disciplined investment journey spread across many years. If someone had invested Rs.12500 per month (or) Rs.150000 lump sum every year for the last 20 years, he might have reached 2 crore corpus at 16% CAGR (Compounded annual growth rate). Kindly note, most of the funds in the past had delivered, more than 20% CAGR in the past.
This is an ideal investment option to generate wealth. Having said that, please do not consider this fund for 3 years as some of the funds themselves names this category as LONG TERM EQUITY FUND. Ex: Axis long term equity (axis tax saver fund), ICICI Prudential long term equity fund (tax saver fund)
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