Doing monthly SIP in ELSS fund for last three years? Here’s why you can’t redeem your entire investment today
If you have been investing in an Equity Linked Savings Scheme (ELSS) through a monthly Systematic Investment Plan (SIP) for the last three years, you still can’t redeem your entire investment today. This is one of the basic rules that many investors are unaware of.
As per SEBI rules, ELSS funds are required to invest at least 80% of their assets in stocks. But unlike other mutual funds, they are subject to a mandatory three-year lock-in period.
Here’s what experts have to say about how ELSS redemptions work.
Why can’t you sell ELSS units all at once?
“Many investors believe the three-year lock-in is calculated from the start date of the SIP. However, in reality, each SIP instalment is subject to a separate three-year lock-in period,” Gibin John, Senior Investment Strategist, Geojit Investments, said.
John explains that if an investor had purchased 100 units in August 2023, 110 units in September 2023 and 108 units in October 2023, only the 100 units become eligible for redemption in August 2026. The remaining units can be redeemed only after their respective 3-year lock-in periods are completed.
Aditya Agarwal, Co-Founder, Wealthy.in, said the “three-year lock-in applies separately to each investment, creating a staggered redemption schedule for SIP investors”.
Chirag Muni, Executive Director, Anand Rathi Wealth, adds that “ELSS SIPs follow a staggered redemption pattern, unlike a lump-sum investment where the entire amount becomes eligible for redemption on a single date”.
Can you break the lock-in by paying an exit load?
No.
“The three-year lock-in in ELSS funds is mandated under the Income-tax Act and mutual fund regulations, making it non-negotiable,” says Agarwal.
John explains that the lock-in is a regulatory requirement, not a fee-based restriction. Until the lock-in ends, ELSS units cannot be redeemed or switched to another scheme.
Muni adds that, unlike other open-ended mutual funds, ELSS investments cannot be redeemed early by paying an exit load. There are no exceptions, even for financial emergencies or medical needs.
Should you invest in ELSS funds only through a lump sum?
Not necessarily.
Muni says the decision should not be driven by whether a lump sum is better than an SIP, but by whether ELSS itself makes sense. The primary reason to invest in ELSS is to claim the Section 80C tax deduction, which is available only under the old tax regime.
He points out that with many taxpayers now opting for the new tax regime, locking money away for three years without any tax benefit offers little advantage, especially when flexi-cap, multi-cap, and large & mid- cap funds provide similar equity exposure without a lock-in.
However, for investors who continue under the old tax regime, a lump sum investment can be a sensible choice because the entire investment becomes redeemable together after three years.
Muni also suggests that “a hybrid approach can also work well, where a monthly SIP is complemented with a lump sum investment towards the end of the financial year to fully utilise the available Section 80C deduction”.
However, Agarwal says the choice between SIP and lump sum should depend on cash flow, market outlook and investment discipline, rather than the lock-in structure alone.
Does investing through SIP affect when you claim the deduction?
Muni noted, “Yes. Investing through an SIP does impact the timing of your tax deduction. Every SIP instalment qualifies for a deduction in the financial year in which it is invested, not when the three-year lock-in ends.”
He shared an example to explain this. If you invest ₹5,000 every month from April 2025 to March 2026, the entire ₹60,000 invested during that financial year can be claimed as a deduction, subject to the overall ₹1.5 lakh limit under the old tax regime. SIP instalments made from April 2026 onwards will qualify only in the next financial year’s tax return.
However, Agarwal mentioned that “the mode of investment does not affect the timing of the deduction. Whether an investor chooses a lump sum or SIP, each investment qualifies for a deduction in the financial year in which it is made, subject to the overall Section 80C limit”.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
About the Author
Sheetal Goel is a Content Producer at Livemint, where she covers corporate developments, personal finance, business trends, markets, and SEBI-related updates. She focuses on simplifying complex financial concepts and presenting them in a clear, reader-friendly manner, thereby helping audiences better understand investment trends, personal finance, and market developments. Her writing focuses on making finance more accessible to everyday readers while maintaining clarity, accuracy, and relevance.
She holds a degree in Economics (Hons.) along with an MBA in Finance, which has helped her develop a strong foundation in financial analysis, market understanding, and business reporting. Before joining journalism, she worked with finance and broking firms, where she closely followed market developments, investment strategies, and evolving industry trends. This practical exposure strengthened her understanding of financial markets. She has also written content across multiple formats and platforms, including YouTube, LinkedIn, and Instagram.
Over time, she has developed expertise in covering market-linked stories, investor-focused topics, and regulatory updates in a simplified yet informative style. She also enjoys reading and listening to Hindi poetry, reflecting her appreciation for literature and creative expression beyond the world of markets and numbers.
