How does switching work in ELSS funds. Is it possible to switch to a Direct plan in the lock-in period? Beyond the lock-in period in case we switch to Direct plan does it mean it will lock-in for the next three years again? If yes, should we switch to non-ELSS funds with Direct plans?
-Amit A
Equity Linked savings Schemes are equity-oriented tax saving funds with a lock-in period of three years. One cannot switch to direct plan of an ELSS scheme during the lock-in period because a switch is a redemption from existing scheme and a purchase into direct plan. There is no option to exit early from ELSS.
This lock-in is meant to prevent early withdrawal of your investment and to let it grow over a period of time.
Investments in direct plans of ELSS schemes will also carry the three-year lock-in.
Normally, one would consider investing in ELSS funds to avail tax benefit on investments in the fund. If you are able to save up to Rs 1 lakh under section 80C without investing in ELSS, then you can shift to a diversified equity large-cap fund for long-term gains.
This article was originally published on July 08, 2013.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
