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How Does an ELSS Calculator Work?

One of the primary objectives of investing in mutual funds, apart from earning valuable returns, is to get a tax benefit. ELSS is one of the best investments that offer both. Read on to know more ELSS mutual funds and ELSS calculator.

An Overview of Equity-Linked Savings Scheme (ELSS)

Equity-Linked Savings Scheme or ELSS is one of the most popular types of mutual funds that most investors have in their portfolio. This open-ended mutual fund is the only type of mutual fund that allows investors to enjoy tax deduction under section 80C. Apart from helping investors grow their investment, ELSS helps them reduce their tax liability.

The scheme is promoted by the Government of Indian mainly to help people develop the habit of saving for the long-term. As per the Securities and Exchange Board of India (SEBI) guidelines, fund house invests 80% or more assets of ELSS in equity mutual funds and the rest in equity-related investment products. If you are planning to invest in an equity savings scheme, it is paramount to know the performance of the fund before investing. You can assess the performance by using an ELSS calculator.

Equity-Linked Savings Scheme Key Benefits-

But, before knowing about the ELSS calculator, it is paramount to know if investing in ELSS is beneficial for you? Here a few benefits of ELSS investment.

  • Amongst all other tax-saving investment options, ELSS has the shortest lock-in period of three years.

  • Since ELSS is a market-linked investment product, the historical performance of ELSS suggests that it provides higher returns than other traditional investment options like PPF (Public Provident Fund), bank fixed deposits and NSC (National Savings Certificate)

  • Apart from qualifying for the tax deduction under Section 80C (up to a maximum limit of Rs. 1.5 lakhs), the long-term capital gains (LTCG) you may earn from ELSS investment are tax-free up to Rs. 1 lakh.

  • ELSS is the only tax-saving investment instrument that allows investors to invest through SIP. A SIP allows you to start investing an amount as low as Rs. 500 per month and get the compounding benefits.

Now that you know about ELSS and its benefits, let’s get to know about ELSS Calculator.

ELSS Calculator – What is it?

An ELSS calculator is an online tool that helps the investors make an informed decision with regards to choosing the best investment scheme in ELSS. With the calculator, you can determine how useful it will be to have ELSS in your portfolio. Depending on the type of equity savings you choose to invest, there are different types of ELSS calculator.

ELSS Calculator for SIP

Systematic Investment Planning or SIP is a way to invest in mutual funds. It allows you to invest a small amount every month in mutual funds, rather than invest a lump sum amount and reduce the risk of investing in equities. Investing smaller amount throughout regular intervals can yield attractive returns in the long run. Also, when you invest through SIP, it helps you be financially disciplined.

If you wish to invest in equities through SIP, you must understand and the worth of the equity savings funds at the end of the SIP tenure. You can determine this number by using an ELSS calculator. The calculator helps to know the potential returns that the SIP can offer, irrespective of whether you invest in debt, equity or hybrid funds.

But, to know the returns, you must enter specific details like the amount of investment, the duration of the SIP, the expected rate of returns, etc. Based on the details, the calculator will automatically compute the estimated returns; you can expect the funds to generate. Knowing the returns will help you plans your investments well to meet your goals.

ELSS Calculator for a lump sum

If you wish to invest a lump sum amount in equities, a lumpsum calculator can help you determine how much returns can your investment generate over a certain period, and at a specific rate. One of the significant aspects of using a lump sum calculator to assess the returns on your equity savings scheme is the duration; ELSS investment come with a lock-in period of three years. Another vital thing to know about using this type of calculator is that it does not take into consideration the tax aspect.

Let us understand the working of a lumpsum calculator with an example:

Assuming you invest a lumpsum amount of Rs. 50,000 for five years at an annualised returns rate of 15%, the calculator will showcase the returns value as Rs. 1,00,568.

ELSS Calculator for SIP Past Performance

This type of ELSS calculator is a vital tool for all investors to get an insight into the historical returns data and past performance of the SIP. The calculator considers details like:

  • The SIP investment amount

  • The start date of the SIP

  • The maturity period of the SIP

  • Name of the AMC (Asset Management Company)

  • Valuation Date

Based on the inputs you provide (for the above details), the ELSS calculator for past performance of SIP will showcase you an estimate of how much your SIP will be worth at the time of maturity. Such an evaluation can help you determine how the fund performs in different market conditions. The long-run performance is also a valuable insight to gauge where the fund’s future performance.

However, you must note that the past performance of the fund does not guarantee the same returns in the future. But the past performance indicates how the fund performed in adverse market condition.

Now, that you are aware of the working of the ELSS calculator, make sure that you use it to your advantage and make an informed investment decision.