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Business News/ Money / Personal Finance/  Lump sum vs SIP: How to redeem your ELSS investments?
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Lump sum vs SIP: How to redeem your ELSS investments?

A popular tax-saving investment under Section 80C of the Income Tax Act of 1961 is the Equity Linked Savings Scheme, or ELSS.?

The shortest lock-in period of 3 years for ELSS makes it the most popular choice for taxpayers to take advantage of 80C deductions. (istockphoto)Premium
The shortest lock-in period of 3 years for ELSS makes it the most popular choice for taxpayers to take advantage of 80C deductions. (istockphoto)

A popular tax-saving investment under Section 80C of the Income Tax Act of 1961 is the Equity Linked Savings Scheme, or ELSS. The shortest lock-in period of 3 years for ELSS makes it the most popular choice for taxpayers to take advantage of 80C deductions. You receive tax benefits in addition to capital appreciation from equity investments, which is why ELSS funds are also known as tax-saving funds. Investing in ELSS funds has two different routes SIP and lump sum, but due to a lock-in period of 3 years making a withdrawal is not possible. Hence, here are the guidelines from different industry experts for lump sum vs SIP investors for withdrawing ELSS fund corpus. 

Varun Girilal, Managing Partner, Scripbox 

ELSS being an investment option with one of the lowest lock-in period of 3 years is an attractive option for a Tax assessee especially if they have deductions of more than 4 lacs through options such as HRA, Mediclaim, etc.

In a year like 2023 where the markets have been muted and not heavily valued, Lumpsum might be a good option provided you give your fund a runway of atleast 5 years of holding and have the liquidity available. With the Nifty Trailing PE ratio at around 21, the markets offer attractive valuations to allocate for the long run. 

Data shows that Investing lumpsums while trailing Nifty PEs are below 22 resulting in a strong probability of double-digit returns 3-5 years down the line. One advantage an Equity fund manager gets with ELSS funds is lower redemption pressure with some visibility of the amount available for 3 years and what can be redeemed. So you also get diversification to a more long-term style of investing from a fund manager.

SIP works well as an option for those who don't have liquidity available and a monthly SIP enables you to avoid the last-minute scamper in March every year.

It also works well when markets are volatile or overheated, you are not investing one lumpsum amount in one shot and averaging out.

Once you have made ELSS investments over a 3-year period, you now have the opportunity of creating a ladder where you need not lock in fresh amounts of capital but can roll over the ELSS made in year 1 for your Year 4 investment if liquidity is constrained.

Co-Founder and CEO Mr. Abhishek Dev, Epsilon Money Mart

April brings the thoughts around tax saving strategies. Talking about same one of the most popular investment avenues that comes in mind is ELSS. But question arise that how we should invest in ELSS through Lumpsum or SIP. If we understand the ELSS , it comes with lock in period of 3 years i.e., no withdrawal before your investment completes 3 years. This is applicable to each, and every slot/unit of investment made. 

Hence Lumpsum would be the better option than SIP as lumpsum investment will have one specific lock in duration. It will also help so compound your investment for whole financial year. In case of SIP route, each SIP will have a separate lock-in- period of 3 years which can cause inconvenience at time of liquidity. But it has advantage too like timing of market is not required and benefit of rupee cost averaging is achieved. One should decide the route as per their investment vision and liquidity needs accordingly. 

Let’s understand with an example. 

a. Mr. A make a lump sum investment of 1,59,000 in an ELSS scheme on 1st April 2022. You can redeem all your ELSS units in one go after 3 years, that is, on 31st March 2025 when the lock-in period ends.

b. Similarly, Mr. Starts SIP of Rs. 12,500 on 1st April 2022. The unit of 1st April 2022 can redeem on 31st March 2025. Again, the SIP for month of May 2022 will be redeemed on April 2022. The cycle will be continued depending on the SIP investment made.

Ashish Misra, chief operating officer - retail banking at Fincare SFB

Either a lump sum withdrawal or a systematic withdrawal plan (SIP) mode can be used to access ELSS funds. The entire investment amount, along with any gains, may be redeemed all at once in the lump sum method. In contrast, using SWP mode, investors can periodically withdraw a fixed amount. According to tax regulations, ELSS investments have a three-year lock-in period, which prevents funds from being withdrawn for at least three years from the date of investment. 

Investors may take partial or full withdrawal of their funds after the lock-in period. So, if an investor puts Rs. 1 lakh in an ELSS fund and the fund value increases to Rs. 1.5 lakhs, once the lock-in period is over, the investor can redeem the entire amount of Rs. 1.5 lakhs using the lump sum technique. As an alternative, the investor may select the SWP option and withdraw a certain amount on a regular basis. 

It's important to note that ELSS investments are subject to tax. If an investor withdraws the funds before the completion of three years, tax is to be paid on the gains. However, after the completion of the lock-in period, gains up to Rs. 1 lakh are tax-free, and gains above that are taxed at 10%.

Rahul Jain, President & Head, Nuvama Wealth

Equity Linked Saving Schemes (ELSS) are eligible for tax breaks under Section 80C of the Income Tax Act. One of the characteristics of ELSS schemes is a three-year lock-in period, which means that the investor cannot redeem the fund before three years have passed from the date of investment. However, an exception to this rule has been made. 

If the original unitholder dies before the end of the three-year period, the legal heir or nominee can redeem the units as long as one year has passed since the date of investment. The rules regarding ELSS redemptions are a little puzzling for SIP investments. In this case, each SIP instalment must complete three years from the date of investment before redemption can occur.

CA Manish Mishra, Virtual CFO

Investment modes in ELSS:

Lump sum investment: investing a substantial amount of money in a single transaction.

Systematic Investment Plan (SIP): investing a fixed amount of money at regular intervals, typically monthly.

Factors to consider when choosing investment modes:

Lump sum investment: suitable for investors with high-risk tolerance and a long-term investment horizon, but risky in a volatile market.

SIP investment: suitable for investors with a short-term investment horizon and low-risk tolerance, and can average the cost of investment and reduce the impact of market volatility.

Tax implications for ELSS fund withdrawal:

Short-term capital gains tax (15%) if withdrawn before three years from the date of investment.

Long-term capital gains tax (10%) for gains exceeding Rs. 1 lakh if held for more than three years.

Indexation benefit can be claimed for the acquisition cost of the investment.


Invest Rs. 1 lakh in an ELSS scheme

Choose between lump sum investment or SIP investment of Rs. 10,000 per month for ten months.

If investment is withdrawn after two years, gains will be taxed at 15% as a short-term capital gain 

If investment is withdrawn after four years, gains will be taxed at 10% for gains exceeding Rs. 1 lakh.

In conclusion, choosing between lump sum or SIP investments in ELSS schemes depends on the investor's financial goals and individual circumstances. When withdrawing ELSS funds, investors must consider the tax implications based on the investment's duration. Consulting a financial advisor is advised to make informed investment decisions and understand the tax implications of ELSS investments.

Mohit Ralhan, Chief Executive Officer TIW Capital

ELSS investment has a lock-in period of three years, which makes the withdrawals a bit complex if one has invested through the SIP route. The withdrawals in case of lumpsum investment are straightforward since the ticker of three years lock-in period starts from the date of investment. In case of SIP, every SIP investment is treated as a separate investment and therefore the three-year lock-in period is also different for each of the SIPs. 

For example, if an investor has invested in lumpsum on 1-Apr-2023 and has been allotted say 120 units then he or she can withdraw all the 120 units on or after 1-Apr-2026. But, in case the investor uses SIP routes dividing the investment by 12 months and buying 10 units every month, then the three-year lock-in for each month ends on a different date. So, the 10 units bought on 1-Apr-2023, can be sold on are after 1-Apr-26 and the next 10 units bought on 1-May-2023 can be sold on are after 1-May-26 and so on. 

Aditya Damani, Founder & CEO, Credit Fair

There are two ways to invest in Equity Linked Savings Schemes (ELSS) – through SIP or lump sum. To withdraw ELSS lump sum after the mandatory lock-in period of three years gets over, one can raise redemption request through online or by visiting the respective mutual fund branch. 

However, when it comes to ELS SIP, each instalment is treated as a separate investment. Therefore, each instalment comes with a three-year lock-in period. For instance, SIP investment instalment made in February 2023 will be redeemable after February 2026.

Anant Jain, Partner, Legacy Growth

There is no thumb rule for investment in ELSS as SIP or lump-sum. However, investment through SIP can be preferred to hedge the risk of market fluctuation as lump sum investment at the peak of the market could be a risky decision for the investor. However, if the market seems to be at its low level (though it's difficult to time the market), then lump sum investment can also be made. 

However, few investors invest in the ELSS at the eleventh hour to save taxes, but it is always avoidable and can be easily done through a monthly SIP.

Investment in  ELSS is subject to a lock in for 3 years which is reckoned from the date of each investment. An investor can withdraw from ELSS by redeeming the units after completion of 3 years. The Investors may also choose to invest the withdrawal amount in the same fund / any other funds to avail the tax exemption for that year.








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Vipul Das
Vipul Das is a Digital Business Content Producer at Livemint. He previously worked for (OneIndia News) and has over 5 years of expertise in the finance and business sector. Stocks, mutual funds, personal finance, tax, and banking are among his specialties, and he is a professional in industry research and business reporting. He received his bachelor's degree from Dr. CV Raman University and also have completed Diploma in Journalism and Mass Communication (DJMC).
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Updated: 29 Apr 2023, 05:59 PM IST
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