ELSS Basics: Lock-in, Risk and Tax Rules

Equity Linked Savings Schemes (ELSS) are equity mutual funds with a mandatory three-year lock-in. Under the old tax regime, ELSS investments may qualify for a deduction within the limits of the prevailing income-tax law.

How the lock-in works

Every investment has its own three-year lock-in from the date of allotment. If you invest through a monthly SIP, each instalment becomes free for redemption three years after its own allotment.

Risk

ELSS schemes invest mainly in equities, so their value can rise or fall with the stock market. The lock-in means you cannot exit early during a downturn.

Tax points to check

• Deductions for ELSS are available only under the old tax regime, as per current provisions.
• Gains on redemption are taxed as long-term capital gains on equity-oriented funds under prevailing rules.
• Tax laws change; always verify the current position or consult a tax professional.

Tax saving should not be the only reason to invest. Consider the scheme’s risk and your time horizon.