Estimating Returns on a 1 Lakh Per Year Investment in ELSS or Mutual Funds Over 12 Years

Investing regularly in financial instruments like Equity Linked Savings Schemes (ELSS) and mutual funds can be a prudent strategy. This article aims to provide a comprehensive understanding of how much return one can expect from investing 1 lakh per year for 12 years in ELSS funds or in mutual funds, based on key assumptions and calculations.

Key Assumptions for Calculation

Investment amount: 100,000 rupees per year. Investment duration: 12 years. Expected annual rate of return: ELSS funds or equity mutual funds: typically range from 10 to 12% annually based on historical data. Conservative estimates for other mutual funds like balanced or debt funds: range from 6 to 10%.

Calculating Future Value using SIP Formula

To calculate the future value of a periodic investment, we use the Systematic Investment Plan (SIP) formula:

[ FV P times left(frac{(1 r)^n - 1}{r}right) times (1 r) ]

Where: P Periodic investment (100,000 rupees) R Expected rate of return per period (annual rate divided by 100) N Number of periods (12 years)

Let's calculate the future value at an annual return of 10% and 12%.

Estimated Returns at Different Rates of Return

Now, let's crunch the numbers:

At a 10% annual return: The estimated return would be approximately 2,352,271 rupees. At a 12% annual return: The estimated return would be approximately 2,702,911 rupees.

These estimates are based on historical data and conservative assumptions. Actual returns may vary based on market performance. It's always advisable to consult with a financial advisor before making such investments.

Conclusion

In conclusion, investing 1 lakh per year for 12 years in ELSS funds or mutual funds can yield significant returns, with estimates ranging from 2.35 million to 2.7 million rupees, depending on the rate of return. These are just estimates, and actual returns may differ.

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