A Complete Guide To ELSS Fund Lock-In Period

Looking to invest in mutual funds that offer high returns and help you save on taxes? Then you’re probably looking to invest in ELSS or Equity Linked Saving Schemes. These funds allow you to invest based on your convenience, and you can also choose how you want to receive returns. The best part? Although these are tax-saver funds, they have the smallest lock-in period of 3 years!

In this blog, we tell you all you should know about ELSS lock-in periods. This way, you can make the most of your investments.

What is the lock-in period in an ELSS fund?

ELSS is the only open-ended fund that has a lock-in period of three years. During this period, investors cannot resell or redeem mutual fund units. That said, investors can still add money to their mutual fund during the lock-in period.

Now that you know about the ELSS lock-in period, let’s look at how you should invest in an ELSS fund.

How to invest in an ELSS fund?

You can invest in an ELSS tax-saving mutual fund in one of two ways- as a lump sum or as an SIP. Note that the lock-in period calculation will vary depending on your chosen investment form.

Remember that the ELSS mutual fund lock-in period for SIP investments is calculated from the investment date. Say your SIP is debited on 1st January 2021, you can redeem the units purchased on 1st January 2024. Similarly, units purchased in February 2021 can be redeemed in February 2024 and so on.

Now that the method of investing is clear, let’s go over the ELSS funds tax benefits.

ELSS benefits: Taxation

Investors investing in ELSS funds benefit from tax deductions. According to Section 80 C of the Income Tax Act 1961, investors can claim an ELSS deduction of up to Rs. 1.5 lakhs. Remember that the tax deduction is across all investments made under Section 80C regulations.

Apart from the ELSS deduction, as per Section 80C, the capital gains earned from the investment fall under Long Term Capital Gains (LTCG) given the ELSS fund lock-in period of three years. This means they are eligible for taxation under the current tax laws. So, the LTCG up to Rs. 1 lakh per financial year is exempt from taxation. But your dividend is still taxable based on your income tax slab.

Along with knowing the ELSS funds tax benefits, you also need to know how to redeem your funds.

What to do after the ELSS mutual fund lock in period ends

ELSS mutual funds become open-ended equity-oriented schemes after the three-year lock-in period. This means you can redeem units whenever you want. Alternatively, you can review the fund’s performance, re-invest the total amount redeemed, and save tax.

Key Takeaways

• ELSS are equity-oriented, open-ended mutual funds that have a lock-in period of three years
• Investors can invest in ELSS via a SIP or make a one-time lump-sum investment
•  ELSS investors are liable for tax benefits as per Section 80C of the Income Tax Act
• Lump sum ELSS investments become open-ended equity-oriented schemes in case of after the lock-in period ends.

With all this information in hand, you can make ELSS investments conveniently. Need more details about ELSS investments or other types of mutual funds? Visit the Moneyfy website today or download the Moneyfy App.