₹1.5 Lakh in ELSS Every Year: How Much Wealth Can You Create in 10 Years?

ELSS funds come with a mandatory lock-in period of three years. You cannot withdraw or redeem your investment before completing three years from the date of investment. Compared to other Section 80C options such as Public Provident Fund (PPF) or tax-saving fixed deposits, ELSS has one of the shortest lock-in periods. 

Note that if you invest ₹1.5 lakh annually in the ELSS scheme, every investment has its own three-year lock-in from the date of your investment. Similarly, SIP investments in ELSS mature separately based on their investment dates. 
 

Additionally, some more features you must be aware of are:
 

1. Majority of Money Invested in Stocks

As mentioned before, SEBI regulations require ELSS funds to invest at least 80% of their total assets in equity and equity-related instruments. This gives the fund significant exposure to the stock market. The remaining portion may be invested in debt and money market instruments for liquidity and portfolio management purposes.

Since equities form the core of the portfolio, ELSS mutual funds can experience market fluctuations. However, equity exposure also creates the potential for long-term capital appreciation.

2. Diversification Across Sectors and Company Sizes

An ELSS scheme is permitted to invest across multiple sectors such as banking, technology, healthcare, manufacturing, or consumer businesses. At the same time, they may also hold companies from different market capitalisation, including large-cap, mid-cap, and small-cap stocks. 

Such diversification potentially spreads investment risk across different parts of the market rather than concentrating exposure in a limited set of stocks.

3. ELSS Tax Benefits

ELSS is a tax-saving mutual fund as investments made qualify for tax deduction under Section 80C of the Income Tax Act, 1961, up to ₹1.5 lakh in a financial year (only under the old regime). 

Besides, after the three-year lock-in period, gains are treated as Long-Term Capital Gains (LTCG). As per current provisions, if total LTCG from equities exceeds ₹1.25 lakh in a financial year, the excess amount is taxed at the special tax rate of 12.5% (without any indexation benefit).

When you invest ₹1.5 lakh annually in an ELSS tax-saving fund, each contribution is treated as a “lump sum” investment. It gets market exposure from day one and must satisfy the mandatory three-year lock-in period.

Now, suppose you had started investing ₹1.5 lakh every year over the past 10 years . In this case, the total staggered investment over 10 years would amount to ₹15 lakh (₹1.5 lakh x 10 years). All investments have completed their respective 3-year lock-in periods over time.

Let’s see how much amount you would have potentially accumulated at annual return assumptions of 12%, 11% and 10%.

In this scenario, your investments in the ELSS scheme would have potentially grown to approximately ₹41 lakhs, with an estimated gain of ₹26 lakhs over the total invested amount of ₹15 lakhs.

In this scenario, your investments in the ELSS mutual funds would have potentially grown to approximately ₹38 lakhs, with an estimated gain of ₹23 lakhs over the total invested amount of ₹15 lakhs.

In this scenario, your investments in the ELSS tax-saving mutual fund would have potentially grown to  ₹35 lakhs, with an estimated gain of ₹20 lakhs over the total invested amount of ₹15 lakhs.
 

So now you know what ELSS mutual funds are and how much potential wealth you could have accumulated by investing ₹1.5 lakh every year as a lump sum over the past 10 years.

To revise, ELSS funds are equity-oriented mutual funds that invest at least 80% of their total assets in equity and equity-related instruments. These funds do not have fixed sector or market-cap allocation restrictions. Consequently, fund managers may invest across large-cap, mid-cap, and small-cap companies as well as different sectors based on market opportunities.

If you had started investing ₹1.5 lakh annually from 2013 onwards, your total investment over 10 years would have been ₹15 lakh. Based on assumed annual returns of 12%, the investment would have potentially grown to approximately ₹41 lakhs. At 11% returns, the estimated corpus would have been approximately ₹38 lakhs, while at 10%, it would have reached approximately ₹35 lakhs.

Want to try more scenarios? You may use an online ELSS SIP calculator to estimate different potential future values of your investments. All you have to input is the investment amount, tenure, and expected rate of return.

1. Is the ₹1.5 lakh tax deduction available only after completing the 3-year lock-in period?

No, the tax deduction under Section 80C can be claimed in the same financial year in which you invest in an ELSS fund. You do not need to wait for the three-year lock-in period to end. 

Note that the lock-in only restricts redemption or withdrawal of units for three years from the investment date.
 

2. Can I invest in ELSS through tax-saver SIP plans?

Yes, investors can invest in ELSS funds through a tax-saving SIP instead of making a lump sum investment. In this approach, you may invest a fixed amount regularly (monthly or quarterly) while also claiming Section 80C tax benefits under old tax regime. 

Note that when you start an SIP in tax saver funds, every instalment comes with its own separate three-year lock-in period.
 

3. Can I switch among equity, debt, or hybrid options in an ELSS scheme?

No, unlike ULIP (Unit Linked Insurance Plan), an ELSS fund does not allow investors to “switch” between equity, debt, or hybrid options. 

If you want exposure to debt or hybrid funds, you would need to redeem your ELSS mutual fund units after the three-year lock-in period and invest separately in other mutual fund categories.

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