Lock-In Period

What is the Lock-In Period? 

It is the minimum duration during which you cannot sell or withdraw an investment. Most schemes have a specific timeline, which varies with different investments and providers. 

Remember, the lock-in period differs from the investment tenure. Here’s what you must know:

• The latter is the maximum time you can stay invested
• The former is the minimum term you must remain invested

Lock-In Periods for Different Investments

Following are the lock-in periods for some investments:

• 3 years for ELSS mutual funds
• 30 to 90 days for hedge funds
• 15 years for Public provident funds
• 5 years for tax-saving fixed deposits
• 6 years for government bonds
• 5 years for a unit-linked insurance plan
• Until retirement for the national pension system

Lock-In Period Example

Say you plan to invest in ELSS mutual funds through a SIP. Regardless of the amount you invest in, you must stay invested for a compulsory period of 3 years. After this timeline, you can liquidate your investment if you plan to do so. These lock-in periods help maintain the stability and liquidity of the mutual fund.

Importance of Lock-In Period

The benefits of a lock-in period are as follows

• Entitles you to claim tax deductions on your investment amount
• Allows companies to maintain financial stability without the risk of premature withdrawal
• Makes it easy for investors to adhere to a long-term investment plan 
• Helps investors avoid impulsive withdrawals and enjoy better returns

FAQs on Lock-In-Period

What is a lock-in period in banking?

Remember these pointers:

• In banking, it refers to the initial investment duration during which you can’t liquidate your assets. 
• If you choose to do so, you must pay penalties or changes. 
• For instance, if you book a tax-saver FD, you cannot withdraw your investment until the tenure of 5 years is complete.

What happens after the lock-in period?

After this period, you can opt for any one of these two options:

• Redeem the investment or liquidate your FD
• Continue investing based on your investment goals

What is the minimum lock-in period?

The lock-in duration varies based on the investment avenue.

• If you invest in mutual funds, the period is 3 years
• The lock-in period is 5 years if you plan to invest in tax-saver FDs

Remember, there isn’t any minimum lock-in period. It is mandatory to stay invested for the given duration as fixed by the issuer.

How do I close my loan before the lock-in period?

There isn’t any lock-in period for loans. Here’s what you need to know:

• In the case of credit, it is a repayment tenure, which the lender and the borrower agree upon at the time of loan application. 
• You can always pay a pre-closure charge to close your loan before this period. 

However, this charge varies from one lender to another. Some lenders like Fibe allow you to pre-close your loan before the repayment tenure without any additional charges.