SIP investments – Learn how to redeem ELSS SIP

The journey to building a successful investment portfolio extends beyond short-term gains and requires a thoughtful approach to managing your wealth and saving on taxes. This is why most experts recommend investing in equity linked savings schemes or ELSS funds. The dual benefits of tax deduction under Section 80C of the Income Tax Act combined with the potential for long-term capital growth, make ELSS a worthwhile investment for investors seeking to make the most of their tax planning and wealth-building strategies.

With a mandatory lock-in period of 3 years, these tax saving mutual funds offer capital growth opportunities through equity market exposure and disciplined investing, especially when executed through a systematic investment plan (SIP) mode.

However, when it comes to ELSS SIP withdrawal rules, there is often a lack of clarity and a common misconception among investors. Many investors mistakenly assume that the entire ELSS investment via SIP becomes redeemable after 3 years. In reality, each individual SIP instalment has its own unique lock-in date. Unlike lump sum, you cannot redeem your ELSS SIP investment in one go, and this critical aspect can significantly impact your withdrawal strategy and investment planning.

Understanding ELSS SIP withdrawal rules with an example

Suppose you invest in ELSS SIP with a monthly investment of Rs. 10,000, starting from April 2, 2023. Each SIP instalment, from April 2023 till the end of your investment period, attracts a stand-alone lock-in period of three years. Thus, the first instalment made on April 2, 2023, is redeemable after April 02, 2026. Similarly, the second SIP instalment invested in May 2023 will be eligible for redemption only after May 2026, and so on.

Steps for redeeming SIP investments in ELSS online

Step 1 – Log into your mutual funds investment app or website using your login details. Once logged in, you will find the list of funds that you have invested in. Select the SIP that has completed the maturity and click on ‘Redeem’ button.

Step 2 – Now, you may be given two options – enter the number of units you want to redeem or enter an amount you want to redeem from the particular fund. Provide this input and click on ‘Continue’.

Step 3 – Review all the details provided by you, like redemption amount, bank account details, etc., and click on the ‘Confirm’ button.

Once all necessary information is verified by the mutual fund house’s team and accepted, it may take up to 24 hours for the transaction to be completed before funds appear in your bank account linked with the investment account.

Redeeming SIP investments in ELSS offline

Step 1: Visit your local mutual fund branch with relevant documents. The documents typically required include KYC documents such as Aadhaar card, PAN card, and bank account statements. You can also check the detailed list of documents from the mutual fund website.

Step 2: Fill out the redemption form. This form will require some basic information, including details about your investments, bank, and contact information.

Step 3:  Submit these forms along with other required documents at the mutual fund branch office counter. Once received, these forms will be reviewed by an executive, following which approval will be granted based on the provided information and submitted documents.

If approved, it may take up to 24 hours to 7 business days for the amount from redeemed investment to get credited into your registered bank account. You may receive an email notification or SMS on registered mobile number confirming that your funds have been transferred into your bank account!

To wrap up

Redemption in ELSS SIP is different from lump sum. Thus, before making a redemption request, ensure to verify the eligible units in the latest account statement to prevent rejection. Remember that long-term capital gains over Rs.1 lakh are taxed at 10% (without indexation) plus surcharges and cess. The dividends will be added to your taxable income and taxed accordingly. Understanding these details is important to manage SIP redemptions and optimise your tax liabilities effectively.