The full form of ELSS is Equity Linked Savings Scheme. It is a tax-saving mutual fund scheme in India that usually provides you with high returns over the years and tax benefits under the Income Tax Act’s Section 80C. ELSS schemes invest mainly in equity and equity-related financial securities. To promote long-term wealth accumulation, these schemes come with a 3-year lock-in period. But what are the ELSS withdrawal rules after the 3-year lock-in period? Is it at all possible to redeem ELSS mutual funds before the lock-in period ends? If you do, what are its repercussions? Do you want to know how to redeem ELSS funds? What are the ELSS funds SIP withdrawal rules? Let us explore everything about them.
ELSS withdrawal rules
There are many ELSS funds withdrawal rules in India. The top 13 rules and regulations about redeeming your ELSS mutual funds are given below:
1. A mandatory lock-in period
As already mentioned above, ELSS schemes have a 3-year lock-in period. This means you can’t redeem or withdraw your investment for three years from the date you invested your money in the ELSS scheme.
2. Withdrawal of your investment partially
During the three-year lock-in period, you can’t redeem your ELSS units either partially or in entirety.
3. Withdrawal after the lock-in period ends
According to the latest ELSS withdrawal rules in India, you can do three things once the three-year lock-in period is complete:
- Withdraw your entire investment (along with incurred profit, as per the NAV value)
- Withdraw investment partially
- Keep the money invested in the concerned ELSS scheme as long as you want
4. Tax benefits
One of the main benefits of investing in ELSS schemes is the tax benefits you get. According to the Income Tax Act, 1961’s Section 80C, you are entitled to get an income deduction benefit of up to Rs. 1.5 lakh in a financial year. However, there is a fine print.
You can get tax-free benefits only on the principal amount you have invested in the ELSS scheme. If you’ve made capital gains on your investment in the ELSS scheme, you will be required to pay taxes as per the prevailing income tax laws of India.
5. Reinvestment options
You may:
- Remain invested after the lock-in period
- Reinvest the withdrawn money in the same mutual fund scheme
- Reinvest the withdrawn money in other financial vehicles as per your financial goals
- There are no strict ELSS withdrawal rules regarding reinvestment of your money after the lock-in period.
6. Exit load
You do not have to pay any exit load for withdrawing your money from the ELSS scheme after the mandatory 3-year lock-in period ends.
7. Systematic Withdrawal Plan (SWP)
Once the lock-in period ends, you can withdraw a fixed amount of money regularly from your ELSS investment. It will help you generate a steady stream of income even when most of your investment in the scheme is still invested. This systematic approach will help you earn returns on your invested money, on the one hand, and generate a regular stream of income through SWP, on the other.
8. Withdrawal process
You can redeem all or some of your ELSS units:
- Online through the fund house's website or app
- Offline by submitting the required documents and forms at their designated offices.
9. Mode of payment
Investors can choose the mode of payment for their ELSS withdrawals, including direct bank transfer, cheque, or electronic funds transfer (EFT), based on their preferences and convenience.
10. Time taken to withdraw money
The withdrawal time for ELSS mutual funds is is standard as per SEBI guidelines, but the processing time may vary from one AMC (Asset Management Company) to another. Depending upon the chosen withdrawal mode of payment, it usually takes a few days.
11. ELSS SIP withdrawal rules
When investing in an ELSS mutual fund through a Systematic Investment Plan (SIP), you should keep in mind that the 3-year lock-in period varies for all your instalments.
Suppose you are investing Rs. 1,000 every month in an ELSS fund. The initiation of a 3-year lock-in period for the first instalment will vary from that of the 12th instalment. At the time of four years of SIP investment in an ELSS scheme, you can withdraw only the first 12 instalments and the associated capital gains.
Therefore, you should consider these ELSS funds SIP withdrawal rules while placing a withdrawal request.
12. Documentation
According to the ELSS withdrawal rules, you may need to furnish a couple of relevant documents when you initiate a withdrawal request. These are usually required to comply with KYC norms. It, in turn, makes the withdrawal transaction process smoother.
Summary
If you are investing in an ELSS scheme, you must take into account all the ELSS withdrawal rules mentioned above. To make an informed investment decision, you should understand the lock-in periods, tax implications, and withdrawal processes. You can optimise your ELSS investments if you know these ELSS funds withdrawal rules in advance and consequently align them with your financial objectives effectively.
