Many ELSS investors assume they can redeem their entire investment once the first SIP completes three years. However, according to reports from Mint, each SIP instalment has its own three-year lock-in period, resulting in staggered redemptions rather than a single lump sum release. As explained by Gibin John, Senior Investment Strategist at Geojit Investments, if an investor 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.
The three-year lock-in cannot be bypassed by paying an exit load, as reported by Mint. Aditya Agarwal, Co-Founder of Wealthy.in, confirmed that the lock-in is mandated under the Income-tax Act and mutual fund regulations, making it non-negotiable. Chirag Muni, Executive Director at Anand Rathi Wealth, emphasized that unlike other open-ended mutual funds, ELSS investments cannot be redeemed early by paying an exit load. The lock-in is a regulatory requirement, not a fee-based restriction, and applies even for financial emergencies or medical needs.
Investing through SIP affects the timing of tax deductions, according to reports from Mint. Chirag Muni explained that every SIP instalment qualifies for a deduction in the financial year it is invested, not when the three-year lock-in ends. For example, if you invest ₹5,000 monthly 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. However, Aditya Agarwal noted that the mode of investment does not affect deduction timing, with each investment qualifying for a deduction in the financial year made, subject to the Section 80C limit.
For investors under the old tax regime, Chirag Muni suggests that lump sum investments can be sensible as the entire amount becomes redeemable together after three years. However, for those in the new tax regime, locking money away for three years without tax benefits offers little advantage, especially when flexi-cap, multi-cap, and large & mid-cap funds provide similar equity exposure without lockins. Sheetal Goel from Livemint recommends a hybrid approach where monthly SIPs are complemented with lump sum investments towards the end of the financial year to fully utilize available Section 80C deductions.
