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Ramalingam Kalirajan |10881 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Jul 19, 2025

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more

Question by SHAH on Jul 19, 2025Hindi

I AM AN KARTA OF AN HUF. THERE IS SOME INVESTMENTS BY HUF IN ELSS MF WHICH HAS LOCK IN PERIOD OF 3 YEARS. I AM PLANNING TO FULLY DISOLVE MY HUF, AND DISTRIBUTE THE ASETS TO ALL THE MEMBERS OF HUF. HOWEVER BECAUSE OF LOCK IN PERIOD, I CAN NOT SELL MY ELSS MF. HOW DO I OVERCOME THIS SITUATION AND FULLY DISSOLVE MYHUF.

Ans: ? Understanding Your Current HUF Investment

– Your HUF has investments in ELSS mutual funds.
– ELSS funds have a strict lock-in of 3 years from investment date.
– During the lock-in, units can’t be redeemed or transferred.

? Legal Restriction During Lock-in Period

– ELSS units are non-transferable during lock-in.
– Even if HUF dissolves, these cannot be assigned to members.
– This is an SEBI regulation and applies to all ELSS units.

? HUF Dissolution and Asset Transfer Planning

– You can dissolve the HUF legally through a partition deed.
– But you cannot transfer ELSS units till lock-in ends.
– Other HUF assets can be partitioned and distributed.

– For ELSS, you must retain them under HUF until each unit’s lock-in ends.
– Once the lock-in is over, units can be redeemed or distributed.

? What You Can Do Now

– Step 1: Identify the investment date of each ELSS SIP or lump sum.
– Step 2: Create a schedule of lock-in end dates for each investment.
– Step 3: Initiate partition of all other movable and immovable assets.
– Step 4: Retain ELSS in HUF name till lock-in ends.
– Step 5: Dissolve HUF formally after that or close only after transferring.

? Treatment of ELSS Units During Dissolution

– Even if you dissolve the HUF now, ELSS cannot be passed to members.
– Mutual fund company won’t process ownership change during lock-in.
– Legal title remains with HUF till maturity of lock-in.

? Operational Way Forward

– Maintain HUF PAN and bank account till lock-in ends.
– One option: dissolve HUF except for ELSS units.
– Keep HUF active only to hold ELSS units till lock-in ends.
– After 3 years from each investment, redeem and distribute proceeds.

? Partition Deed with Clause for ELSS

– Prepare a written partition deed listing all HUF assets.
– Mention ELSS investments and their lock-in dates separately.
– State clearly that ELSS will remain under HUF till lock-in ends.
– Add clause to distribute ELSS proceeds post lock-in as per agreement.

? Taxation Implications

– During lock-in, ELSS continues to be taxed in HUF’s name.
– LTCG above Rs. 1.25 lakh taxed at 12.5%.
– Short-term capital gains (if any from other assets) taxed at 20%.
– Post lock-in, when redeemed, gain is taxed under HUF.
– You can distribute only net amount to members.

? Family Agreement & Clarity

– Ensure all members of HUF agree on partition terms.
– Take written consent from each member to avoid future issues.
– Keep a notarised deed and record asset valuation clearly.

? Role of Certified Financial Planner

– A CFP can help create a step-wise strategy.
– Also helps in timing redemptions, handling taxation, and planning future reinvestments.
– If members want to reinvest ELSS proceeds individually later, CFP can guide well.

? Avoiding Errors

– Don’t try to transfer ELSS units to individuals before lock-in.
– This will violate fund terms and SEBI rules.
– Mutual fund house will reject any such transfer request.

? Future Planning Post Redemption

– Once ELSS units are redeemed, you can distribute as per partition terms.
– Each member can invest that in personal mutual funds.
– Regular mutual funds (non-ELSS) can then be held in their individual names.

– For new investments, avoid ELSS under HUF if dissolution is planned.
– Use individual accounts or family trust structures if needed.

? Final Insights

– You cannot bypass the ELSS lock-in through dissolution.
– You must wait for 3-year period to end for each investment.
– Till then, HUF must remain active to hold ELSS legally.
– All other assets can be divided through a proper partition deed.
– Plan dissolution in phases if needed.
– Maintain transparency among members.
– Once ELSS unlocks, redeem and distribute based on prior agreement.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

Asked on - Jul 21, 2025 | Answered on Jul 21, 2025

I THANK YOU FOR THE PROMPT AND DETAILED REPLY. I WILL STUDY AND REVERT WITH ANY MORE QUERRIES ,IF ANY.

Ans: You're welcome! If you have any more questions or need further assistance, feel free to ask. Best wishes on your financial journey!

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

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