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ELSS lock-in period — how each SIP instalment locks

By PSS Ventures editorial · Last reviewed 2026-05-14 · 8 min read

Short answer

Each ELSS instalment locks for three years from its own allotment date, not from the date you started the SIP. A five-year monthly SIP therefore has units maturing on a rolling basis from month thirty-seven. Redemption runs first-in-first-out over eligible units, and dividend-reinvested units start a fresh three-year clock.

Regulated fact — Equity Linked Savings Scheme, 2005 (CBDT notification), as continued under the Income-tax Act, 2025

The lock-in rule, exactly

The three-year lock-in is a feature of the Equity Linked Savings Scheme itself — the scheme notified by the Central Board of Direct Taxes, whose eligibility for deduction carried into the Income-tax Act, 2025 when it replaced the 1961 Act on 1 April 2026. The lock-in attaches to each parcel of units at the point it is allotted, not to the folio. For a SIP that means every monthly instalment carries its own clock. AMFI's investor-education material at amfiindia.com describes the same mechanic.

Worked example

Suppose you start a ₹5,000 monthly ELSS SIP on 5 April 2026 and stop after 24 instalments (you'll have contributed ₹1,20,000). Your last instalment is 5 March 2028. Your lock-in timeline:

  • Instalment 1 (5 Apr 2026): eligible from 5 Apr 2029.
  • Instalment 12 (5 Mar 2027): eligible from 5 Mar 2030.
  • Instalment 24 (5 Mar 2028): eligible from 5 Mar 2031.

Full redemption of the entire ₹1,20,000 (now worth more or less depending on NAV) is possible only on/after 5 March 2031. Partial redemption — limited to instalments 1–12 — is possible from 5 March 2030.

FIFO at redemption

When you redeem, the AMC's registrar applies First-In-First-Out: the oldest eligible units are sold first. This matters for tax as well as for the lock-in — where markets have risen, the oldest units were bought at the lowest NAV and therefore carry the largest gain, so they use up the ₹1.25 lakh annual long-term exemption faster than newer units would.

Why this matters operationally

If you're planning a goal at month 36 with ELSS, you can only access ~1/36th of your contributions on that exact date. For 100% of the goal, you need to plan the SIP for 36 months + the goal date. Practically: an ELSS SIP for a year-3 goal is the wrong instrument; use a non-lock-in equity fund.

The IDCW footgun

Choosing the IDCW Reinvestment option on an ELSS fund means every IDCW declaration allots fresh units that start their own 3-year clock from the allotment date. Over a 10-year holding, your most recent IDCW units might still be locked. Use the Growth option unless you have a specific reason for IDCW.

FAQ

Can I redeem the whole ELSS folio at year 3?
No. At month 36 only the first instalment has completed its own three-year lock-in. Instalments 2 through 12 become eligible at months 37 through 48 respectively. If you stopped contributing at month 12, the folio is fully redeemable only from month 48 onwards.
Why are the oldest units redeemed first?
First-in-first-out is how the registrar identifies which units have actually completed their lock-in, and it is also the order used to compute capital gains. It is not something you can override at redemption time — you cannot ask for newer units to be sold to preserve the older ones.
Do IDCW reinvestment units start their own lock-in?
Yes. Units allotted when income distribution is reinvested are fresh units, and each batch begins its own three-year lock-in from its allotment date. Investors who picked the IDCW Reinvestment option without knowing this find they still hold locked units many years in. The Growth option avoids the cascade.
Can I switch from ELSS into another scheme before three years?
No. A switch out is a redemption for this purpose, so the same per-instalment three-year lock-in applies to the units being switched. Only instalments that have completed their own lock-in can be moved.

This article is general information and not investment advice. PSS Ventures Pvt Ltd is an AMFI-registered Mutual Fund Distributor (ARN-356973). Mutual Fund investments are subject to market risks. Read all scheme related documents carefully before investing.