ELSS funds have lock-in of 3 years. Can I cancel the SIP in ELSS funds?Asked
Yes SIP in tax saving ELSS schemes can be cancelled. An SIP can be continued till the time period specified, or stopped or terminated whenever one wishes to do so. The fund then follows this instruction in about one month. There is no penalty charge for cancelling or stopping an SIP. The SIP investment can also be paused for a specific period of time.
ELSS funds have a lock in period of 3 years, which means that the units of mutual fund that one purchased will become available for withdrawal after 3 years.
To understand the lock in period lets take an example.
-Lets say an investor invests a total of Rs 12000 in an year, say from January 2017 to December 2017, with monthly instalments of Rs 1000.
-These investments resulted in different no. of units purchased depending on the NAV at that time. For simplification, lets assume that the number of units purchased are 100, 120, 90, 80, 85, 95 , 100, 110, 115, 105, 120 and 110 respectively.
-Total no. of units bought- 1230
-Total investment- Rs 12000
-Each instalment is treated as a separate investment and each has a lock in period of 3 years. This means that the 100 units purchased on January 2017 will be available for redemption on January 2020. The remaining 1130 units cannot be withdrawn as they have not completed 3 years. Similarly 120 units bought on February 2017 can be withdrawn on or after February 2020 and so on.
Lock in period is sometimes confused with the minimum time for which one needs to continuously invest in a given scheme. But this is not what it means. An SIP therefore can be stopped or paused anytime depending on the investor's preferences. Thus an investor can analyse his investments and see whether he is getting good returns or not and accordingly decide whether he should continue with the SIP.