How do SIPs work in ELSS mutual fund?

ELSS or Equity Linked Saving Scheme, like all other tax-saving investments, comes with a mandatory lock-in period. In the case of ELSS, the lock-in period is lowest in its category of tax saving funds u/s 80C which is three years.

When you are making a lumpsum investment, it is easy to understand how the lock-in period works. Suppose the amount invested is Rs. 1 lakh you can withdraw the entire amount once the investment completes three years. If you are investing via an SIP, the three-year lock-in period is applicable to every SIP instalment. That means, only the first SIP instalment will complete three-year lock-in period at the end of three years.

Every SIP installment is treated as a separate investment and it will be locked for 3 years. For example, your SIP investment on 08 Jan 2021 will be locked till 08 Jan 2024 and your next SIP investment on 08 Feb 2021 will be unlocked on 08 Feb 2024 and so on.

Remember, it is not mandatory to redeem your units after the lock-in period ends. It is suggested to invest in equity for the long-term (7-10 years), the lock-in should not make a difference to the way you treat your investment.

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