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Can I exit my mutual fund at any time or is there a lock-in?

By Finserv MARKETS - Aug 26,2019
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Can I exit my mutual fund at any time or is there a lock-in?


Mutual funds refer to a collective pool of investments drawn from various investors and managed by a fund manager on their behalf. The investments are made in alignment with the similar financial goals and risk profiles of the investors. One of the key advantages of investing in mutual funds schemes is the feature of easy liquidity: the ease with which the investment can be converted into cash makes mutual funds a lucrative destination to park your funds.

Since mutual funds are regulated by the Securities and Exchange Board of India (SEBI), they have well laid out norms to ensure this liquidity. Majority of the mutual funds investments schemes are an open-end scheme. This means that they offer liquidity as a major feature. As long as it is an open-ended fund, you can choose to exit the mutual funds, both equity and debt funds, as soon as they become available for daily sale and purchase. However such a hasty exit is not necessarily advisable. The usual rule of thumb says that you need to stay invested in the fund for at least 4-5 years to be able to generate good returns in case of equity funds. If you have invested in debt mutual funds, then the time period is 2-3 years to ensure that the market volatility of interest rates doesn’t have a detrimental impact on your financials.

Should you choose to withdraw funds, however, the good news is that there’s nothing stopping you from doing that. Once the redemption is complete, funds are transferred to the bank account, the details of which are furnished by you, within 3 business days after the redemption was registered or applied for.

In the case of redemption, you need to keep in mind a couple of things: the first being the concept of exit load. An exit load refers to the fee that the Asset Management Companies (AMC) charge the investor at the time of exiting, withdrawing from or redeeming a scheme. This charge is levied to discourage investors from withdrawing in the short-term. Another catch is that the AMC may indicate the minimum amount for redemption – so you need to have information on the specific terms and conditions.

This is why mutual fund investors are requested to read the offer documents carefully before investing. At Finserv MARKETS, you get to invest in your desired products without losing money on commissions. It also aids personal financial planning: when you open an account, you receive detailed portfolio summaries and insights into the performance of your investments. Such ready access to information can make it easier to make a decision about actions like change in portfolio or withdrawal.
Such decisions will be governed by the nature of the mutual fund schemes you choose. Here it would be useful to know that there are certain specific kinds of mutual funds investment schemes that cannot be freely withdrawn. Let’s have a look.


Mutual fund schemes with lock-in periods:

Equity Linked Savings Schemes (ELSS), which offer tax benefits under Sec 80C, are required by regulation to ‘lock-in’ units for a period of 3 years, after which they are free to be redeemed.

This means that any investment made under this scheme can only be withdrawn after 3 years are complete and that hints at the long-term nature of the fund’s performance. In case you choose to redeem her ELSS after the 3-year lock-in period, the long-term capital gains (LTCG) up to Rs 1 lakh are tax-free. Ideally, you should invest in them with an investment horizon of at least five years.

Another category of schemes called the Fixed Maturity Plans also come with certain conditions for the investment duration. The investors need to stay invested for a stipulated period which is pre-defined in the offer document of the scheme and can last anywhere between three months to a few years.


Recent developments:

There is a new category of debt mutual funds introduced by the Securities and Exchange Board of India (SEBI) called the overnight funds. These schemes invest in overnight securities with a maturity of one day. This makes them the least risky among the debt mutual fund categories.

However, the imposition of exit load might render such funds inefficient as avenues to park money for a shorter duration.

All things considered, it is better to consult an investment advisor or have the details and information about your investment when it comes to the rules and regulations on the minimum time horizon of investment in a scheme. With Finserv MARKETS, you get to invest in Direct mutual funds where you, as an investor can buy trade directly with the mutual fund company without the need for a broker. With information readily available you can make a prudent decision with respect to exit or withdrawal from mutual fund investments. Finserv MARKETS also brings you the benefit of personalized financial planning: you can get exclusive offers based on your risk profile and your investment goals. Invest in your desired products without losing money on commissions with just a few clicks!


Finserv MARKETS, from the house of Bajaj Finserv, is an exclusive online supermarket for all your personal and financial needs. We understand that every individual is different and thus when you plan to achieve your life goals or shop for the gadget of your dreams, we believe in helping you Make it Happen in a few simple clicks. Simple and fast loan application processes, seamless, hassle-free claim-settlements, no cost EMIs, 4 hours product delivery and numerous other benefits. Loans, Insurance, Investment and an exclusive EMI store, all under one roof – anytime, anywhere!


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