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What Is The Lock-In Period Under Mutual Funds?

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With multiple market-linked investment options at the investors’ perusal, savings has a new meaning. Conventional methods like Savings Accounts and Term Deposits offer steady returns. On the other hand, options like Unit Linked Insurance Plans and Mutual Funds provide immediate growth. An example of its growing popularity is the introduction of multiple products under Mutual Funds by domestic and foreign companies.

Of the current options, the Mutual Fund Investment is the most viable option. It offers attractive interest to people of all age groups and does not require an infusion of substantial funds. A minimum investment amount would suffice. Let us understand the concept further. What are Mutual Funds about? It is where like-minded investors pool money into assets such as stocks and other money market instruments handled by Asset Management Companies.

The fund managers appointed by the AMC distribute the returns to primary investors based on the ongoing Net Asset Value per unit of the Mutual Fund scheme. In India, the SEBI manages the fund operations. Since online Mutual Fund is a popular concept in India, they have separate classifications. Each carries a different structure and investment objective, the most popular one being Equity-Linked Saving Scheme.

One not only reaps tax benefits from ELSS, but the investor can also invest in hand-picked Equity instruments that offer maximum exposure and returns. They also come with a lock-in period of three years. The same concept is valid for a Systematic Investment Plan.

What is the need for a lock-in period?

The reasons why the lock-in period is essential are:

  • During this phase, the investor cannot sell or purchase the accumulated units
  • Another reason is the prevailing Income Tax laws. The investor can claim benefits in the income on online Mutual Fund Investment that comes with a lock-in period

What to do after the lock-in period expires?

Mostly, Close-Ended Mutual Funds follow the lock-in period. When the lock-in period expires, you should check the performance of your scheme. Investors can transfer the funds to Open-Ended Funds if the result is unsatisfactory. That way, they can gain higher returns. Also, once the lock-in period expires, the profits turn negative.

What to avoid when the lock-in period expires?

Some factors to remember when the lock-in phase ends are:

  • If it is ELSS Mutual Funds, do not encash it instantly
  • Do not use the same money in a different ELSS scheme for claiming additional tax benefits

When to encash Mutual Funds?

Once the lock-in period ends, do not encash them. As the phase expires, it becomes an open-ended scheme. This way, the investors can withdraw funds at any moment. Also, the investors need not pay for the exit load or other such tax withdrawals. Before you invest in Mutual Fund, study their financial portfolio, and then opt for the suitable scheme.

People now use the Mutual Fund app, which updates the ongoing NAV rates and lets them review their schemes.  

 

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