ELSS Withdrawal: How to Redeem ELSS Mutual Funds

There are various types of mutual fund schemes that offer multiple benefits to investors. Equity-linked saving schemes or ELSS funds as they are widely known offer dual benefits of wealth creation and tax deductions to the investors.

ELSS funds are one of the tax-saving products offered by mutual fund companies that come with a lock-in period of three years. One can save taxes on up to Rs 1.5 lakh under Section 80C of the Income Tax Act by investing in ELSS funds, but you will not be able to withdraw the money before the completion of three years.

Compared to other tax saving options, ELSS funds have the lowest lock-in period. Moreover, they invest mostly in equities and thus have the potential to outperform other options as far as return on investment is concerned. That is the reason ELSS funds are favoured by those investors who can take relatively more risk and do not want the money to be locked in for a large period.

Unlike other modes of investment, ELSS funds do not have a part withdrawal option ahead of the maturity period. You can only redeem your investments once the lock in period is complete. The process of redeeming your investment is fairly easy but the process may be different depending on how you invested in the fund – that is, whether lump sum or systematic investment plan (SIP).

How to Redeem Lump Sum Investment From ELSS

In lump sum investment, an investor deposits a sum of money and holds that investment. For lump sum investment, the lock in period is calculated from the date of investment and spans three years. For example, if you invested Rs 1 lakh in any ELSS fund on January 1, 2020, you can withdraw your money from January 1, 2023, onwards anytime.

There are a few ways to withdraw lump sum ELSS investments. The first method is to go to the website of the mutual fund house where you invested. You will have to create an account on the website and then log in, if you already do not have an account. After you log in, the information regarding your investment will be displayed. You can easily find the option to redeem your investment on the same page. Just click on the option and the mutual fund house will process your request within three working days.

If you had bought mutual fund units via some third party apps or a distributor, you can raise a redemption request at that app or with the distributor. They will send the request to the mutual fund house and help you get the money. 

Alternatively, you can visit the nearest branch office of the mutual fund house and file an application to redeem your investment. You can find the location of the nearest brand office on the website of the mutual fund house.

There is another way. Some record keeping agencies such as CAMS or KFin Technologies also allow investors to process redemption requests. You can visit their website or their branch offices to file the request.

How to Redeem SIP Investments from ELSS

The method to redeem SIP investment in ELSS funds is a bit complicated. This is because each instalment of the SIP is considered a separate investment. Hence the lock in period also varies across the units you accumulate.

For example, if you started a SIP in January 2020 in any of the ELSS funds and started making the deposit on the first of every following month. For sake of simplicity, let us say you received 100 units of that fund every time with every SIP deposit. That means you will have 100 units in January 2020, 200 in February 2020, 300 in March 2020 and so on. Let us assume you end with 1,200 units by the end of the year.

The lock in period for the ELSS fund will start ending from January 2023 onwards. However, you cannot redeem the entire portfolio in January. Only the first 100 units are eligible to be redeemed at this time. The quantity will increase every month, such as 200 units in February, 300 units in March and so on.

So, if you want to redeem the entire portfolio in one go, you will have to wait till December 2023 and then file a redemption request. Instead, you can file a redemption request every month if you need the money earlier.

The process of filing the redemption request is the same for SIP investment as well. You can visit the website of the asset management company, go to a local branch office of the same company, or call your distributor or the application where you purchased the mutual fund.

Redemption of SIP From DSP Tax Saver Fund

Factors to Consider for ELSS Mutual Funds Investment

 Factor to consider while selecting the best ELL scheme for investment purpose

• Invest in an investment horizon: Consider ELSS only if your financial goals are slightly long-term, as it will lock in your money for a period of 3 years.

• Research past performance: See the kind of returns the fund has generated over various periods, such as 1, 3, and 5 years.

• Fund management: Note the experience and track record of the fund manager.

• Choose a diversified fund: Go for a fund that will spread its investments across sectors to mitigate the risk.

• Compare the expense ratios: The lower, the better: This simply means that more of your money is invested in your fund.

• Factor in your risk appetite: Pick an ELSS fund within the spectrum of your comfort level in terms of fluctuation of market, such as high risk/high return potential or low risk/moderate return potential.