Returns of 30% with ELSS

I heard recently from one of the tax expert that the investment done in ELSS will be exempted for Tax. So for person in tax bracket with 10% can save 10% tax, 20% bracket will save up to 20% and a person with 30% bracket will be able to save 30% with a lock-in period of 3 years.

If we go with the theory a penny saved in penny earned then we can have atleast 10%,20, or 30% returns with ELSS plus whatever the fund gives return in that year which may be 10% in a year. It can be maximum 30+10=40% max for a person in 30% tax bracket.

However the maximum amount we can invest through this method is Rs.1,50,000/-. Can I get some inputs from members if my theory and calculation for the same is correct or not?

150000 per year. So you can have multi year SIP. I have in Axis Long Term Equity Direct Plan. Excellent return with tax saving

Maximum amount which you can invest under Section 80C is 1.5L. You can invest upto 1.5L in ELSS Funds. Axis is good as recommended above. You can also have a look at DSP BlackRock Tax Saver Plan.

@nityanandparab Your calculation is right. For a salaried investor/tax-payer, a good amount of money is invested in his/her provident fund u/s 80C, after that Insurance premium, tuition fee for child/children and group insurance etc come u/s 80C. After all that a person can invest a small amount in ELSS. I know that max limit is 1.5L; but who want to invest for 3 yr lock- in without tax deduction? So, I feel, salaried investors invest a small amount there. If, an investor invests 1.5 L in ELSS, her/his upfront return will be 15/30/45 thousand of Rupees (plus cess etc.) and then the CAGR of the MF; which is 31% for 3 yr (annualised/ data from VROL) in case of Axis LTE Fund (G).

This is the power of compounding in MFs!

But you can invest only 1.5 L or even less!!


AFAIK, only tax exemption is upto 1.5L. You caninvest any amount, but 80C limit defines your tax excemption limit.


Prudence is to invest that much which gets Tax Exemption under 80C. There are other things also considered for 80C like Education Loan Intt of the children, Intt on Housing Loan and a lot of other things. Net can be deposited under ELSS. I have been regularly investing in HDFC Long term equity fund which is ELSS with SIP. It has given me better returns than my equity portfolio.

When you invest your pre-tax funds, you get a one time return equal to your marginal tax rate irrespective of how you invest those funds. There are many investment options that government allows you to use with your pre-tax funds. ELSS is just one such option.

With ELSS, the lock in is only 3 years so you can recycle your investments in ELSS every 3 years and claim the tax benefit every 3 years instead of 5-7 years (or more) with some other tax deductible investment options available. Assuming your marginal tax rate is 30%, you get additional return of 10% (30%/ 3 years) per year with ELSS compared to investments made with post-tax funds. Because of the low lock in period of just 3 years this option is better than other options. This is how government is encouraging small taxpayers to invest in equity. ELSS funds also tend to be a little better than other funds as redemption pressure is low. That’s another benefit. Other than that ELSS funds are subject to the same market risk that any equity fund is subjected to.

However, investment in ELSS is clubbed with everything else that qualifies for 80C including a long list of expenses that are deductible. So I would max out my deductible expenses and then use ELSS for leftover 80C limit (if any).

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Dont do SIP on ELSS fund which has 3 years lock in period. Every SIP you do , you will have multiple lock-in. Lets say that you have dividend reinvest option on top of that- your money is perpetually locked in.

Dividend reinvestment in ELSS is not allowed as per latest regulations as per my understanding and such option is not offered anymore.


I still prefer ELSS which force us not to with draw and give us compounding return

@maravan21- help me understand, what do u mean by perpetual locked-in? This may not be true for dividend options.Even for growth option, my understanding is that I can start withdrawal of the vested units I.e. units > 36 months from the investment. In fact, MF houses has systemtic withdrawal plans (SWP) to facilitate that.

For the reinvested dividends, yes, there will be time lag for those units to be fully vested but practically the amount/unit value will be low.

Please clear me:

The lock in period is 3 yr, we can claim only for 1 yr 80C. then if we invest every year for 3 yr, what about the remaining 2 yrs. or we need to renew the elss every yr?

Example: Say on 20th Sept 2016 you invest Rs 150000. Then you can redeem this only after 20th Sept 2019. No need to renew every year. Similarly you may choose to invest Rs 150000 from Apr 1st 2017 to 31st Mar 2018 and this investment can redeemed after 3 years.

SIP is the best option, unless you can time the market with lumpsum amount, else your returns depend on the time of investment and can be seriously skewed if the investment is in a bull run.


in simple word once u invest in ELSS than that money will be locked for 3 years. if u start SIP then units allocated would be free after three years for respective SIP date.

If dividend reinvestment option is selected then ELSS becomes perpetual.
First step to stop this from happening, is to change the dividend option.

Check out this article. For past investments with dividend reinvestment option, option change form needs to be submitted