How Does An Elss Calculator Work?

Last Updated: 14 Jun 2024

ELSS funds enhance your yields by providing tax exemptions under Section 80C of the Income Tax Act. The beauty of this scheme is that it is a long term wealth creator with low lock in period. At the same time, the tax exemption enhances the yields on the fund, as compared to a normal equity fund.

Some Of The Key Merits Of Equity-linked Savings Scheme (elss)

What are the key benefits of investing in an ELSS fund. Here is a gist of what it is all about.

1. Among the various tax-saving investment options, ELSS has the shortest lock-in period of three years. For example, if you look at a PPF investment, then the normal lock-in in 15 years. In the case of NSC it is 7 years and for long term bank FDs and ULIP schemes, the lock-in period is 5 years. ELSS is the only Section 80C investment with just 3 year lock-in.
2. ELSS is a market-linked investment product, so it is a very useful product to onboard first time investors into equities. Most investors tend to be wary of equities but that glosses over the fact that equities have been the best performing assets over the long run. ELSS ties you done in equities for 3 years with strong equity participation.
3. If you look at the historical performance of ELSS, it clearly suggests that it provides higher returns than other traditional investment options like Public Provident Fund), bank fixed deposits and NSC. The participation in equities also makes it a solid long term wealth creator.
4. The funds invested in ELSS can be churned once every 3 years and the tax benefit can again be availed at the end of 3 years with the same money. For example, if your Rs.1.50 lakhs has grown to Rs.2.50 lakhs in 3 years, you just invest Rs.1.50 lakhs in Section 80C eligible ELSS funds and the balance elsewhere.
5. Being equity funds, the taxation of capital gains is also at a concessional rate. While STCG is not applicable for ELSS funds due to the 3 year lock in, the LTCG is taxed at a concessional rate of 10% after considering a special equity exemption limit of Rs.1 lakh per financial year. This enhances the post-tax returns on an ELSS fund.
6. ELSS is the only tax-saving investment that allows investors to invest through the systematic investment plan (SIP) route. A SIP allows you to start investing an amount as low as Rs.500 per month and you can match your outflows to inflows. Also, the benefit of rupee cost averaging is an added benefit.

What Exactly Do You Understand By An Elss Calculator?

An ELSS calculator is an online tool that helps 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 which can be tabulated as under.

• ELSS calculator for Systematic Investment Plans (SIPs)
• ELSS calculator for Lump-sum investments
• ELSS calculator for reviewing past performance
• ELSS calculator for simulating different investment / tax scenarios

Elss Calculator For Systematic Investment Plan (sip)

Systematic Investment Planning or SIP is a technique to invest in mutual funds and ELSS schemes in a phased a gradual manner. It allows you to invest a small amount every month in mutual funds, rather than invest a lump sum amount. This not only reduces the timing risk but also gives the benefit of rupee cost averaging. Also, when you invest through SIP, it helps you be financially disciplined and inculcates regular saving habits in you.

If you wish to invest in equities through SIP, you must understand what will be the value of the equity linked savings funds at the end of the SIP tenure. You can determine this number by using an ELSS calculator. Remember, you cannot you cannot predict returns, but if you use the past returns as a benchmark, you get an indicative picture (if not precise) of how much your SIP will be worth. This SIP ELSS calculator is basically an IRR (internal rate of return) approach instead of the routine CAGR approach.

This will presume that you enter the specific details before the output is there in front of you. What are the key inputs required in this case? You must enter specific details like the amount of investment, the duration of the SIP, the expected rate of returns, start date, end date, your tax slab etc. Based on these details provided, the calculator will automatically compute the estimated returns. As stated earlier, for a SIP, the calculator will use IRR based calculations and not CAGR based calculations due to the periodicity of flows. Knowing the returns will help you plans your investment amount and tenure better for your goals.

Elss Calculator For A Lump Sum

Compared to a SIP, the ELSS calculator for a lump-sum investment is a lot simpler and straight forward. If you wish to invest a lump sum amount in equity based SIPs, a lumpsum calculator can help you determine how much returns can your investment generate over a certain period, and at a specific rate.

Here the focus is more on CAGR than on IRR since the periodicity of inflow is just once. One significant aspect 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 factor is the expected rate of return and you can use past returns as a proxy.

Let us understand the working of a lumpsum calculator with an example. For example, if you put in the inputs into a lump-sum ELSS calculator as lumpsum amount of Rs.50,000; tenure of 5 years and expected return of 15% CAGR, the calculator will showcase the returns value as Rs.1,00,568. You can also use the thumb rule of “Rule of 72” which says that the money doubles in (72/CAGR yield) number of years.

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. This calculator is important as it gives you the actual returns generated in SIP or lumpsum of ELSS by specific funds. So in this case, your calculators are real and practical. The calculator considers the following details.

• The SIP investment amount
• The start date of the SIP
• The maturity period of the SIP
• Name of the AMC (Asset Management Company)
• Scheme name and plan (Direct or Regular)
• 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. Remember, such calculators are a picture of the past and does not show you about the future. But here is how you can use this calculator.

Such an evaluation can help you determine how the fund performed in different market conditions. The long-run performance is also a valuable insight to gauge where the fund’s future performance. You can then use this indicative returns to work out what could be the future returns or the wealth created by the fund.

Needless to say, the past performance of the fund is not reflective or a guarantee that similar returns would hold in the future too; although they are generally reliable. 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. The best application is the simulation under different scenarios.