The three-year lock-in period for ELSS funds prevents the realisation of short-term financial gains. You can only realise long-term capital gains as a result. Any up to Rs 1 lakh per year are tax-free, and gains over this amount are subject to a 10% long-term capital gains tax.
ELSS products have a 3-year lock-in. This is built in the structure of the scheme as it's a requirement imposed by the Central Board of Direct Taxes (CBDT).
Because they both participate in the equity markets, ELSS funds carry comparable risk to equity funds and are essentially diversified equity funds. However, ELSS funds also have a three-year lock-in period following investment during which the fund's assets cannot be withdrawn, in addition to the implied equity risk component.
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