Can you redeem ELSS before three years?

Can I redeem my ELSS mutual fund holdings prematurely during the lock-in period? What is the procedure? What is the downside? - Vivek Sheth

Unfortunately, there is no option to withdraw your ELSS investment before the lock-in period of three years. While other funds allow you to take a loan against securities, this option is not available with ELSS funds.

To reiterate, ELSS or equity linked savings scheme, also known as tax saver mutual funds, have a mandatory lock-in period of three years counted from the date of unit allocation.

Let's understand the redemption cases with an example.

In the case of lump sum investing
If you have invested in an ELSS mutual fund via the lump sum route (at one-go), all your units will be allotted on the same day, and therefore they can be redeemed in one go once the three-year lock-in period is over.

Suppose, you had made a lump sum investment of Rs 1,00,000 in an ELSS mutual fund scheme on January 1, 2022. You can redeem all your mutual fund units in one go once the lock-in period ends on January 2, 2025.

In the case of an SIP
The redemption case can be a little tricky if you have taken the SIP route to invest. Each SIP instalment is a new investment, so each instalment has a three-year lock-in period. This period is calculated from the day units are allotted for that month's instalment.

Let's assume you start a monthly SIP of Rs 1,000 in an ELSS mutual fund on January 1, 2022. In this case, the date of each SIP instalment and the date after which you will be able to redeem your investment will look something like this:

So if the SIP instalment date for your ELSS investment is January 1, 2022, you will be able to redeem that after January 1, 2025. Similarly, if you invested in the ELSS fund through an SIP on April 1, 2022, you can redeem that after April 1, 2025.

If you are looking to invest in some other ELSS, check out the top-rated funds handpicked by our experienced team of analysts.

Suggested read: Mutual fund redemption and taxation

This article was originally published on January 19, 2023.