Can a nominee redeem ELSS before three years lock-in period?

ELSS fund lock-in period not completed but investor died and transmission done to nominee. Can nominee redeem after transmission before completion of lock-in period? - Buderia Achar

Yes, in the case of unfortunate passing away of the original unitholder, the nominee or legal heir can redeem the ELSS fund units after one year from the date of allotment of units to the deceased unitholder. This means that the nominee/legal heir needn't wait for the full lock-in period of three years.

ELSS funds have a lock-in period of three years
While most mutual funds do not have a lock-in period, equity-linked savings schemes or ELSS funds have a lock-in period of three years from the date of allotment of units to the original unitholder. The units can be redeemed only after the completion of the three-year period.

However, when a unitholder passes away, their units can be claimed by the nominee or legal heir through a process called transmission. Once the units are transferred, the nominee or legal heir becomes the owner of those units and can redeem, transfer, or pledge them as they wish.

An example for better understanding
If an investor bought units in an ELSS fund in 2021 and passed away in 2022, the nominee can claim the units and have them transferred to their own name. Since these units are subject to a lock-in period of three years, they would typically not be redeemable until the end of this period.

However, in this scenario, the lock-in period is reduced to one year due to the reason for redemption being the death of the original purchaser, as per the rule stated above. It's important to note that the original purchase date, rather than the date of transmission, is considered. Therefore, the nominee can redeem the units now as it has been over one year since the original purchase year of 2021.

Suggested read: How to redeem mutual fund units after a parent's death?

This article was originally published on April 03, 2023.