Lock-in Period definition and meaning

Today, we are going to explain to you in detail about the lock-in period through this post of yours. What is a lock-in period and how is it implemented? Before we know about this, we know, to whom and how does the lock-in period apply?

A lock in period relates to an investment. “Investing in the market is subject to risk” You must have heard this often, but to know it deeply, it is very important to know all the things related to it.

What is an investment market?

The market is a place where money is invested by big companies or by some small traders. In exchange for that investment, they take some shares of the companies in their name or they buy those shares for a limited time period.

All these investments are subject to risks, this means that the value of your shares decreases due to the ever-declining market, and when there is some increase in the market, the value of your shares automatically increases.

What is the lock in period?

If the lock-in period is defined in the correct terms, it would mean that logging a limited amount of money for a long period of time is covered under the lock-in period. In the investment market, according to many schemes, you can invest your money for a long time and also tie it in a lock-in period. There are some disadvantages to this as well as benefits.

The lock-in period can also be from 30 to 60 days and when it comes to the long-term lock-in period, it can range from 3 to 5 years.

  • The amount invested is tied up over a limited period of time. If the investor falls under the lock-in period, he can neither exit any asset before time nor sell it.
  • This lock-in period also applies to loan holders. Accordingly, the loan holder cannot repay the loan without paying the penalty of borrowing ahead of time.

Lock-in Period advantage and disadvantageĀ 

There are many schemes in it, from which the common man has to compensate for the loss along with the facilities. Let’s take a look at them as wellā€¦.

Plans such as plans for children and retirement plans are included under the lock in period. These plans are logged for about 5 years. The biggest problem remains for the consumers, whether they show their interest in these plans or not.

Retirement Plan

According to the lock-in period, the time period of the retirement plan depends entirely on the retirement. If you have less than 5 years left in your retirement, then your lock-in period will end soon.

Whether experts agree, then they are opposed to investing according to the lock-in period. If the experts agree, then according to them, investing in general equity or a balanced scheme is more beneficial.

Experts say that it is not right to invest continuously through lockin for 5 years. But if looked at positively, it will bring a discipline in investment and a certain amount will be locked for a specified time.

Let us know how ELSS scheme works in lock in period?

The ELSS scheme has a duration of 3 years. Though it may prove to be disadvantageous 3 years before this scheme, if the benchmark has performed much worse than the prescribed performance, you can transfer the investment to other open ended equity.

According to experts, investing in mutual equity funds for a long time is beneficial. By long we mean at least 7 years. If you want to invest for a shorter time period such as 2 or 3 years, avoid Mutual Equity Fund. If you invest in it for 7 years or more only then it will prove beneficial for you.

Sometimes investors also do this by withdrawing money from equity funds over a 3-year time period and thinking of investing in a new ELSS scheme. They will not get any benefit from this because it does not increase the amount invested.

Withdraw money at the time of need

If you have invested in an equity fund, then keep in mind that you should try to withdraw money at the time of your financial need. You can use the amount invested in case of emergency such as deteriorating health or when you need something in the family, which will be better for you.

Keep in mind that this amount remains locked in only for 3 years, after which it turns into an open ended scheme. After 3 years, you can withdraw money from ELSS scheme anytime in which you do not have to pay tax.

Easy way to avoid tax

According to experts, the easy way to avoid tax is the ELSS scheme. There are 2 benefits of this scheme that investors like very much.

  1. Money can be invested in this for a longer period of time. One who stays in the lock-in period for 3 years then becomes open-ended.
  2. This is a very good tax saving investment scheme. If an investor wants to avoid dying tax, then it can adopt this scheme.

Experts say that investors doing high business should invest at least one and a half lakh rupees in this scheme. They say that if you want to benefit from the tax, then under Section 80c you get the provision of exemption from tax on the amount of one and a half lakh only.

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