Do tax-saving funds' 3-year lock-in apply to each SIP?

How will the three-year lock-in period be calculated if I start an SIP in an ELSS fund? Will it be counted from the first instalment, or will each have its own lock-in period? - Dr Tathagata Bhattacharjee

Each SIP contribution will have its own lock-in period. The three-year lock-in period in an ELSS (Equity Linked Savings Scheme) fund applies to each SIP instalment separately.

Example of how the lock-in works

Suppose you start a monthly SIP in an ELSS fund from April 2024. The lock-in periods for your first few instalments will be:

• The April 2024 SIP can be withdrawn only after April 2027
• The May 2024 SIP can be withdrawn only after May 2027
• The June 2024 SIP can be withdrawn only after June 2027

Basically, if you keep investing for multiple years, each SIP contribution will be locked in for three years from its investment date.

Tax-efficiency of ELSS funds

While ELSS funds offer tax benefits under Section 80C of the Income Tax Act, it's important to note that these benefits are available only under the old tax regime. If you are under the new tax regime, you won't be able to claim a deduction for your ELSS investments.

That said, ELSS continues to be one of the best tax-saving options under the old tax regime. Even if you follow the new tax regime and don't seek tax benefits, it remains a solid investment avenue for long-term wealth creation.

Also read: New tax regime? These three 80C investments still make sense

This article was originally published on March 10, 2025.