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Can You Switch ELSS Funds To Other Tax-Saving Funds?


ELSS is diversified equity mutual funds that invest a significant portion of your capital in equity and equity-related securities. The fund manager is seeking securities of companies with strong growth potential and a flexible business model. ELSS funds provide you with a convenient way of availing tax benefits while trying to generate higher returns by leveraging the ability of equity markets.

No one will stop you from the switch, but if you do so, you will levy exit fees and income taxes. Alternatively, keep the current ELSS as it is, stops the additional investment, start investing in the ELSS you want and withdraw money from the earlier ELSS when you have three years to avoid taxes.

ELSS is an open-ended equity fund that invests most of the money in equity-related instruments, which not only helps you save tax under 80C but also gives your money a chance to grow in the long run.

Well, there are many options available to save money, but they cannot beat the inflation in your savings. Being an equity fund that is very diversifying in nature will help you build a strong portfolio and also beat inflation with good margins.

You can only do this if your investment has completed the 3-year lock-in period. You are not allowed to redeem or switch your current ELSS investments earlier.

You can invest in ELSS for three consecutive years. The investment made in the first year will have a period of three years and will be available for redemption or switch from the fourth year. Investment for the second year will also be available for redemption or switching from the fifth year and so on.

After the 4th year, you can rotate your ELSS investment by merely switching your existing ELSS investment to a new one and get tax benefits while investing in the stock market.

ELSS investment through SIP

If you have invested in ELSS schemes through SIP, there will be a lock-in period of 3 years for each EMI. So if you want to redeem or switch all your units together at the end of the 4th year (from the 5th year), all your units will be available for the day you start the SIP in the ELSS scheme.

When you invest in ELSS through SIP, however, each instalment will be seen as a separate investment, and each will be closed for three years.

If you have chosen the dividend reinvestment option, your basic units will be free after three years from the date of investment. Still, the units which have been allocated due to dividend reinvestment will be free from the allocation in the account after three years.

Before the mandatory three-year lock-in period, you cannot switch from ELSS funds to other tax-saving funds.

Such investments, also known as tax saving funds, have a lock-in period of three years. Therefore, you will only be able to withdraw or switch from the plan (in whole or part) after the completion of three years.

Note: Most fund houses have 1 ELSS plan and no fund house allows you to switch between two fund houses. For example, you can switch from BSL frontline equity to another BSL fund in the BSL Top 100, but not any other fund house.

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