The Buyt Desk
Before you start an investment you must know the lock-in period of that investment tool. But why is it so important to check the lock-in period of the investment product? Let us understand.
What is the Lock-in Period?
The lock-in period is a length of time for which investors lock the investment fund for investees. Any withdrawal from the account during this period remains restricted. E.g., if any investment product has a lock-in period of three years, the investor cannot withdraw the fund before it completes 3 years. After that, he can choose to continue or surrender the investment. If an investor chooses to discontinue his investment before the lock-in period and stops paying the due, he may not receive the full refund and in many cases end up paying a penalty too.
Every investment comes with a lock-in period with diverse tenures. E.g., the lock-in period of PPF is different from FD or ELSS. Therefore, when you invest it is important that you check its lock-in period in advance. If you don’t want to block your money for a long time, invest in financial products with a short lock-in period.
Lock-in Period of Different Investment Policies
Public Provident Fund – PPF is a favourite investment product for no-risk taker investors. It is a risk-free investment that also provides tax benefits. However, it comes with a set of rules for the fund withdrawal.
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The lock-in duration of PPF is 15 years.
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Partial withdrawal of up to 50% is allowed in PPF after seven years of account opening.
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One partial withdrawal is allowed in a year.
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Early closure of a PPF account is possible in certain exceptional conditions and comes with a penalty.
National Pension System – The National Pension System (NPS) matures only when the subscriber retires i.e after the age of 60 years.But there is a provision for part withdrawal after a minimum lock-in period of three years.It can be availed only for special circumstances.
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The account holder can withdraw up to 25% of his contribution from the NPS account for reasons like illness, disability, to purchase property, child education or marriage and to start a new venture.
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Partial withdrawal is allowed for a maximum of 3 times in the entire tenure of NPS.
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After five years, a subscriber can withdraw a maximum of 20% of accumulated corpus as lump sum and 80% of the fund he should use to purchase an annuity plan to receive the pension.
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Normal withdrawal is allowed at the age of 60 years, the account holder can withdraw a maximum of 60 % from the accumulated fund and 40% of the fund he should use to purchase an annuity plan to receive the pension.
Tax Saving FD – The lock-in period for tax saving FD is five years. It does not let the account holder do any transaction on the amount before the lock-in period.
ELSS Fund – This fund has a lock-in period of three years. After the end of a three-year period for a specific investment, ELSS becomes an open-ended equity-oriented investment scheme.
