How does 3 year lock-in period work in ELSS while investing via SIP?

Short Answer

ELSS or Equity Linked Savings Scheme is a type of tax-saving investment instrument. It provides returns, similar to equity funds and offers a tax reduction under Section 80C. If you invest in a SIP method, every contribution towards the scheme will be considered as a separate investment and will incur a 3 year lock-in period.

Detailed Answer

What is an ELSS Mutual Fund?

An ELSS or Equity Linked Savings Scheme is a type of mutual fund that offers equity-like returns and also comes with some tax benefits. By investing in an ELSS scheme, you can claim a tax rebate of up to Rs 1,50,000 in a financial year under Section 80C.

ELSS Funds come with a 3-year lock-in period, only after which you can redeem your funds. Once you invest in an ELSS fund, you cannot sell the units before 3 years. This type of fund is similar to equity mutual funds as a majority (minimum of 65%) of your funds are invested in equity. It is also a long-term instrument due to its lock-in period. You can invest in an ELSS scheme in a lump-sum method or invest under a Systematic Investment Plan (SIP).

How is the lock-in period calculated in the case of SIP?

Now that you know, ELSS mutual funds come with a 3-year lock-in period, the question arises how is the lock-in on SIPs calculated. Hence, to begin with, every investment in an ELSS scheme is considered a separate investment and comprises its individual lock-in period. Let's understand this with an example.

Suppose you start a monthly SIP for 3 months starting on the 1st of May, 2020. Every month you invest Rs 10,000 in your chosen ELSS fund. Now the 3 investments would be made on 1st May, 1st June, and on 1st of July of 2020.

Therefore, the lock-in period will end for the funds invested on 1st May 2020 on 1st May 2023. The remaining funds will be available for redemption on 1st June 2023 and 1st July 2023. In this way, you can calculate the lock-in period of an ELSS fund.

If you had continued your SIP for longer than 3 months, then all the investments will incur a 3 year lock-in period. If you wish to redeem any amount from the fund, you will only be able to redeem the units that have completed the 3-year lock-in.

Tagged With: elsssystematic investment planmutual fundequity mutual fundlock in period
Categories: Mutual Funds
Ask your query and our expert community would be happy to help
Discussion (0)
Related FAQs

What are benefits of SIP in mutual funds investment?

SIP stands for Systematic Investment Plan. You can invest a fixed amount of your choice and set a specific date for investing your money monthly, bi-monthly or fortnightly.

What is SIP in mutual funds? How to start SIP online?

The introduction of Systematic Investment Plan (SIP) in the mutual fund is regarded as one the major breakthrough in the financial sector. It has helped to attract a new class of investors in the sector who were not comfortable to invest a lump sum at a time.

Are market highs good to invest in Equity mutual funds?

Understanding the relative position of the market, the absolute values do not matter much. What matters is what is the earnings multiple, currently the market is trading at, popularly captured by a metric called P/E ( Price to earnings).

Which is better investing in equity, mutual funds, or keeping money in banks?

Equity and mutual funds are perfect if you want to invest in companies while seeing your money grow in a short period. Moreover, the chances of compounding your investments are higher. But the risk associated is equally greater considering the growth of companies and their performance in offering returns. But then keeping money in the bank is the safest way to keep your earnings. But then, due to inflation and low returns on interest, that value of the money kept might be cut down drastically.

What is Fincash Review? Login and invest in SIP in Mutual funds

Fincash is a yet another online investing platform that was started in 2016 or you can call it a fintech startup. Having raised funding, it has grown fast to give tough competition to other market players.

How can NRIs from the United States invest in Mutual Funds in India?

NRIs living in the United States can invest in Indian Mutual Funds, but there are some hassles that have to be overcome. You will require an NRE, NRO, or FCRN account in order to convert the foreign currency into Indian rupees, post which you can complete the KYC and begin investing in Indian Mutual Funds.

Which is better FD vs. Mutual Fund vs. Real Estate Investment?

FD vs Mutual Fund vs Real Estate Investment has its advantages in terms of how much you invest and your investing period. Longer the period, higher the returns.

How to invest in mutual funds with or without demat account?

Investors looking to invest in mutual funds without a Demat account can invest through financial institutions, independent financial advisors, AMC, and online portals.

Is Groww App Safe for Mutual fund and Stock Investing?

Yes, Groww app is completely safe for mutual fund, stock investing and trading. As a popular mutual fund investment plaftorm, Groww established itself quite well in the past few years. Now, it has also enetered the stock broking space so it's really good to see new entrants amid existing top discount brokers in India.

Can NRIs invest in mutual funds in India?

Yes, any NRI can invest in mutual funds in India, if they follow some certain conditions under Foreign Exchange Management Act or FEMA Act 1999.