How ELSS Helps in Saving Taxes and Fund Retirement

ELSS or Equity Linked Saving Schemes, despite being hands-down the most volatile of all the other tax-saving investments  under Section 80c, is also the only investment capable of generating inflation-beating returns. ELSS can even help you fund your retirement.

This article is all about looking into the ways an ELSS fund can help fund your retirement.

Now usually, retirement is the one thing that is the last concern of investors our age or belonging to the millennial generation. Even though you are in your 20s, you only have 40 years and time really flies.

However, for those few who are thinking in the direction of investing in ELSS for sake of retirement saving, let us get you prepped.

We know it’s a little too far to start thinking just this instant but let us start with giving you a road map of how it should all look.

The Road map to Saving for Your Retirement Through ELSS

ELSS is the equity-based mutual fund plan that comes with a 3 year lock-in period from the time you make the investment. Now, once the lock-in ends, ELSS turns into an open-ended fund which can then be liquidated. What you have to do now is instead of redeeming the amount, remain invested.

Next, keep investing till you are five years from retirement. Remember that equities need time to grow so keep investing till five or six years are left for your retirement. And, once you reach the time, refrain from investing in any more or new ELSS until you have seen and managed your risk profile.

Also, as part of a derisking scheme, move your ELSS mutual funds in much less volatile assets which are based on debt securities.

This is how it should ideally work.

Suppose you invest around Rs. 1 Lakh on an annual basis for approximately 20 years of your working life and assuming that growth rate was around 12%, the amount would be around Rs. 1,20,000, which can be just one part of your retirement planning portfolio (of course you would have other investments too)

And now that you know the road map that you need to follow, let us now see the amount that you would have to save to ensure that you are neither over-investing nor under.


Here’s how to plan that.

  1. Get an estimate of the amount that goes into managing your household expenses today at the present day cost.
  2. Now, count the years that are left for your retirement
  3. Next, multiply your household expenses by 5 times – the normal rate of inflation that you can expect to occur when you reach your retirement age.
  4. Then, calculate the amount that you will need to lead your retirement life.
  5. Lastly, see how much savings you will have to do now to build that corpus.

The next stage is choosing the set of ELSS mutual funds that you should invest in.

Well, the answer to this lies in going with a fund or set of fund schemes that are diversified according to large-cap and mid-caps. And the point to remember here is to invest in multiple ELSS funds but not more than 2 to 3, at any given point of time.

Now, the next legitimate question comes – How do you make the investment?

Well, you will have two ways to go about it. Either you can put in a good amount of money in the chosen ELSS funds at a time, under the Lumpsum approach, or you can fix a tenure and the amount which would then keep on getting credited from your account automatically every month, otherwise known as the SIP or Systematic Investment Plan approach.

What young investors usually prefer is the latter as they don’t generally have the time or the corpus to invest in all together, at the same time.

Lastly, between now and the till the time you are five or six years behind retirement, keep looking out for the scheme’s performance once the ELSS ends. When you look at the performance, compare the fund with the benchmark return and if you that there is consistency or that the fund is growing, let the ELSS investment continue in the fund, otherwise, change it.

And now that you have seen it all and are theoretically prepared to start saving for your retirement, it is time to actually begin. Get in touch with our team of Retirement investment experts, today!