What to Do After Your ELSS Mutual Fund Lock-in Period Ends?

Published on April 05, 2023 | 4 min read

What to Do After Your ELSS Mutual Fund Lock-in Period Ends?

Key Takeaways

ELSS mutual funds are dual-benefit funds that invest in the equity market to generate returns and offer tax benefits under 80C of Income Tax Act 1961.
ELSS funds have a mandatory lock-in period of three years within which investors cannot withdraw or redeem their investments.
After completing the three -year lock-in period, investors can choose to partially or wholly withdraw their investment or continue investing, based on their financial goals and investment objectives.
For investors using a SIP (Systematic Investment Plan), the three-year lock-in period for an ELSS fund applies to each instalment.

Your ELSS has completed its three -year lock-in. Does that mean you should withdraw?

The answer depends on your unique financial goals and investment objectives. You do not have to mandatorily withdraw your ELSS investments after completing the lock-in period. You can choose to stay invested or continue paying your SIPs (Systematic Investment Plan).

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What to Do After Your ELSS Mutual Fund Lock-in Period Ends?

Though ELSS funds have a minimum mandated lock-in period of three years for all ELSS funds, investors are not required to redeem those units after the lock-in period ends.

They can choose to partially or entirely redeem their investments or choose to stay invested/continue investing.

When the ELSS fund’s lock-in period ends, your fund becomes similar to an open-ended and equity-oriented scheme, allowing you to withdraw and redeem your investments.

ELSS funds have a lock-in period for tax purposes as they were designed to encourage long-term savings. ELSS funds offer tax benefits under section 80C of the Income Tax Act, 1961.

How to Redeem Your ELSS Investment?

You can redeem your ELSS investment by submitting a redemption request online to the fund house or in-person. Investors can invest in ELSS funds through two methods: Lumpsum and SIP. The units eligible for redemption depend on their respective purchase dates and completion of the three-year lock-in period.

Read: How to Redeem Your Mutual Fund Investments

How ELSS Fund Redemption Works: Lumpsum vs SIP

Let’s understand how the ELSS fund redemption process works for lumpsum and SIP investments.

Feature	Lump Sum Redemption	SIP Redemption
Lock-in Period	Investors need to complete exactly 3 years from the lumpsum purchase date.	Investors have to wait 3 years independently for each separate SIP payment.
Redemption Timing	The entire investment corpus can be withdrawn all at once.	Only ELSS fund units that complete 3 years are unlocked and can be redeemed.
Redemption Order	All units can be redeemed simultaneously.	SIP redemption follows FIFO (First-In, First-Out) as per the unit purchase dates.
Liquidity Access	Available all at once after 3 years.	Offer gradual liquidity where units unlock instalment-by-instalment after completing the lock-in period.
Convenience	Single redemption request needed.	Multiple or staggered redemption requests for older units.

ELSS mutual funds are tax-saving funds that offer dual benefits, i.e., equity-market-linked returns and applicable tax deductions on investments. This fund carries a mandatory lock-in period of three years within which you cannot withdraw your ELSS fund investments. Investors can invest via two approaches: lumpsum investment and SIPs.

In case of SIPs, each SIP has a separate lock-in period counting from the exact date that instalment was made.

A common misconception is that investors have to mandatorily withdraw their investment after completing the lock-in period.

After completing your mutual fund lock-in period, you can either partially or fully redeem your investment or continue to stay invested, depending on your financial goals.

FAQs

What happens when my ELSS 3-year lock-in period ends?

When your ELSS fund's 3-year lock-in period ends, your investments are unlocked and can be withdrawn, switched to another fund, or stay invested, depending on your financial objective.

Is it mandatory to withdraw my ELSS fund investments immediately after 3 years?

No, it is not mandatory to withdraw your ELSS mutual fund investments after completing the 3-year lock-in period. You can choose to remain invested.

Do I have to pay tax if I withdraw my ELSS mutual fund money?

Yes, if you earn a profit on your investments, you have to pay 12.5% Long-Term Capital Gains Tax on the profit earned.

Can I reinvest my redeemed ELSS money to save tax again?

Yes, you can withdraw your funds and reinvest them into a fresh ELSS scheme to claim a tax deduction under Section 80C for the new financial year.

Is a SIP in ELSS locked in all at once?

No, each SIP instalment has its own separate 3-year lock-in period counting from the exact date that instalment was made.

About Author

Mariyam Sara

Sub-Editor

holds an MBA in Finance and is a true Finance Fanatic. She writes extensively on all things finance whether it’s stock trading, personal finance, or insurance, chances are she’s covered it. When she’s not writing, she’s busy pursuing NISM certifications, experimenting with new baking recipes.

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About Upstox

Upstox is a leading Indian financial services company that offers online trading and investment services in stocks, commodities, currencies, mutual funds, and more. Founded in 2009 and headquartered in Mumbai, Upstox is backed by prominent investors including Ratan Tata, Tiger Global, and Kalaari Capital. It operates under RKSV Securities and is registered with SEBI, NSE, BSE, and other regulatory bodies, ensuring secure and compliant trading experiences.