Short answer: ELSS (Equity Linked Savings Scheme) units have a three-year lock-in from allotment. For a Loan Against Mutual Funds (LAMF), do not assume locked units qualify as collateral: the lender must accept the specific scheme and its pledge process must be available.
How the ELSS lock-in works
SEBI's investor guidance explains that ELSS units cannot be withdrawn during the three-year lock-in. Each SIP instalment has its own lock-in clock from its allotment date. A folio can therefore contain older units whose lock-in has ended and newer units that remain locked.
Example: an IT employee invests ₹5,000 monthly for 36 months, contributing ₹1,80,000 before market gains or losses. When the first instalment reaches its third anniversary, that lot may complete its lock-in; the latest instalment will still have nearly three years left.
Before you apply for a LAMF
Ask the lender to confirm whether the exact ELSS scheme and ISIN are accepted, whether any units are still locked, the LTV/haircut, fees, interest method, repayment terms and what happens if NAV falls. Do not count locked units as available collateral until eligibility is confirmed.
Worked example
Assume a ₹4,00,000 portfolio contains only ₹2,00,000 of lender-approved, eligible units. At a hypothetical 40% LTV, the illustrative advance would be ₹2,00,000 × 40% = ₹80,000.
If ₹80,000 were drawn at a hypothetical 11% simple annual rate for 90 days, interest on a 365-day basis would be ₹80,000 × 11% × 90 ÷ 365 = about ₹2,169. Actual lender calculations, fees and repayment requirements may differ.
Checklist
- Record each ELSS purchase/SIP allotment date and lock-in completion date.
- Confirm the exact scheme and units are eligible for pledge.
- Compare interest, processing/pledge fees, repayment terms and closure charges.
- Stress-test a fall in NAV and understand any margin-shortfall process.
- Compare already-unlocked investments, savings and other borrowing options.
FAQs
Can ELSS be redeemed before three years?
No. SEBI's investor guidance describes a three-year lock-in; each SIP instalment has its own period.
Can locked units definitely be pledged?
Do not assume so. Confirm the pledge process and lender eligibility for the exact units.
Does LAMF remove market risk?
No. NAV can fall, reducing collateral coverage. Check the lender's margin-shortfall terms.
Action plan
List your ELSS lots and lock-in dates, obtain written pledge-eligibility confirmation, then compare the lender's total cost and repayment terms before borrowing.