Lock in Period

When you invest in mutual funds, one of the first things you need to understand is whether your money will be “locked in.” The lock-in period is essentially the time frame during which you cannot redeem or sell your investment. For many new investors, this can feel like a restriction, but in reality, it’s designed to encourage commitment and long-term wealth building.

Closed-ended mutual funds usually have a fixed lock-in period, while open-ended schemes offer more flexibility and allow you to redeem at any time. For example, Equity Linked Savings Schemes (ELSS) come with a 3-year lock-in, whereas Unit Linked Insurance Plans (ULIPs) have a minimum of 5 years. Understanding lock-in periods is the first step to disciplined investing. If you’re ready to build that habit, start small and let compounding work for you. Start Investing or SIP with Just Rs. 100!

In this guide, we’ll break down what a lock-in period really means, why it matters, how long it lasts for different investment products, and what options you have once it ends.

What is a lock-in period?

A lock-in period is the minimum duration for which your investment cannot be redeemed, withdrawn, or sold. Simply put, once you invest in a financial product that has a lock-in clause, your money is committed until that period is over.

The purpose of a lock-in differs depending on the investment type. In mutual funds, it discourages frequent trading, ensures stability, and promotes long-term investing habits. Once the lock-in expires, you are free to withdraw your money, continue with the same scheme, or switch to another option without restrictions. Knowing how lock-in works helps you choose funds aligned with your goals and liquidity needs. The next step is finding the right fund to invest in. Compare Mutual Fund Options Now!

Different mutual fund lock-in periods

Mutual funds in India have varying lock-in rules depending on the scheme type. Here’s a breakdown:

What is the lock-in period in different types of investments?

While mutual funds are one of the most common instruments with a lock-in clause, other financial products also have their own timelines. Here’s a quick look:

• Mutual Funds: Close-ended mutual funds usually carry a 3-year lock-in. Equity Linked Savings Schemes (ELSS), which are tax-saving funds under Section 80C, are the only open-ended mutual funds that impose a lock-in of 3 years. This applies whether you invest via SIP or lumpsum. Compared to other tax-saving tools, this tenure is relatively short, making ELSS a preferred option.
• Tax-saving Fixed Deposits: These deposits have a mandatory 5-year lock-in. You cannot withdraw funds before maturity without penalties.
• Government Bonds: The tenure depends on the bond type. For example, National Savings Certificate (NSC) carries a 5-year lock-in, while the Public Provident Fund (PPF) requires a 15-year commitment.
• ULIPs (Unit Linked Insurance Plans): ULIPs come with a 5-year lock-in. The intent is to ensure investors remain invested long enough to benefit from market-linked returns.

Why is lock-in period important?

The lock-in period isn’t just a rule—it serves a purpose:

• Encourages long-term investing: By restricting premature withdrawals, it promotes financial discipline and helps investors stay focused on long-term goals.
• Provides tax benefits: In instruments like ELSS and tax-saving FDs, the lock-in is mandatory for claiming deductions under Section 80C.
• Gives fund managers stability: Knowing that money is locked in allows fund managers to plan and invest more efficiently, without worrying about sudden redemptions.

What is lock-in period in ELSS mutual funds?

Equity Linked Savings Schemes (ELSS) are the only type of mutual funds that combine tax-saving benefits with equity investing. ELSS funds come with a mandatory 3-year lock-in, the shortest among all Section 80C investment options.

This lock-in ensures that investors stay invested in equities for a meaningful period, giving them time to benefit from potential market growth. Besides wealth creation, ELSS investors can claim up to Rs. 1.5 lakh in tax deductions annually under Section 80C.

You can invest in ELSS funds either through SIP (Systematic Investment Plan) or via lumpsum, depending on your financial goals and comfort.

Method of investing in ELSS funds

Investors can choose between two main approaches when putting money into Equity Linked Savings Schemes (ELSS):

1. SIP (Systematic Investment Plan)

• Risk mitigation and discipline: SIP is ideal for those who prefer steady contributions and risk control. Regular investments reduce the impact of market volatility by spreading purchases over time.
• Rupee cost averaging: With SIP, you automatically buy more units when prices are low and fewer when prices are high, leading to a lower average cost per unit over the long term.
• Accessibility: SIPs allow you to start with small amounts regularly, making them affordable and inclusive for a wide range of investors.

2. Lumpsum

• Capital deployment at once: Suitable for those with a large sum ready for investment, lumpsum investing captures market opportunities immediately.
• Higher return potential in upswings: Since the entire amount is invested upfront, any market appreciation directly benefits the portfolio.
• Goal-based suitability: Lumpsum works best for specific financial goals like buying a home, higher education, or one-time large investments.

Whether you prefer the discipline of SIPs or the impact of lumpsum investments, Bajaj Finserv makes it easy to invest in ELSS funds online with quick KYC, secure payments, and real-time tracking. Explore Top-Performing Mutual Funds!

What to do after the expiry of the lock-in period?

Once the lock-in period ends, investors can decide their next move. Here are some key steps:

1. Review performance: Check whether the fund has met your financial expectations and continues to align with your goals.
2. Redeem or reinvest: Decide whether to withdraw your money, switch to another scheme, or stay invested.
3. Explore alternatives: Look at other mutual funds or financial instruments based on your new objectives.
4. Diversify portfolio: If you redeem, spread your investment across asset classes to reduce risk.
5. Reassess goals: Your financial needs may have changed—update your investment plan accordingly.
6. Plan for taxes: Remember, gains from redemptions may be taxed. Factor this into your decision.

How to check the lock-in period of a mutual fund?

The lock-in period refers to the time during which you cannot redeem or sell your investment in a mutual fund. Since this directly affects liquidity and planning, checking it beforehand is essential. Here’s how you can verify the lock-in period for any scheme:

• Fund’s official website: Most mutual fund houses clearly mention the lock-in period on their scheme details page.
• SEBI or AMFI websites: Regulatory portals provide scheme-related documents with information on lock-in terms.
• Scheme Information Document (SID) / Key Information Memorandum (KIM): These official documents contain all details, including lock-in duration, taxation, and exit load.
• Customer care or AMC branch: If details are not available online, you can reach out directly to the mutual fund company.

Conclusion

The lock-in period is a key aspect of mutual fund investing that influences both liquidity and discipline. While it may restrict immediate withdrawals, it encourages long-term commitment—an essential ingredient for wealth creation.

For investors, being aware of the lock-in period ensures better planning, informed decision-making, and realistic expectations from the investment. It also helps align choices with financial goals, whether for tax saving, retirement, or wealth accumulation. By investing through the Bajaj Finserv Mutual Fund Platform, you can explore ELSS and other schemes with full transparency on lock-in requirements, helping you plan smarter for your goals. Start Investing or SIP with Just Rs. 100!

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