I want to invest in funds without any lock-in so that I can withdraw them anytime. What are these funds?Asked
Mutual Funds generally do not have lock in period except if the investments are made in ELSS (Equity Linked Savings Scheme). Open ended schemes do not have any lock-in periods. This includes Growth Plan, Direct Investments as well as Dividend Plan. It does not matter whether investment is made online or via a dealer. Mutual Funds generate long term capital gains when invested for more than a year. Taxes are not levied if invested for more than a year. If investor decides to redeem the investments before the period of one year, he will have to pay short term capital gains taxes on his investments. So it is generally advised to stay invested for more than a year. Moreover if investment is withdrawn before one year then the mutual fund companies generally charge an exit load of 1% even if the fund is an open ended fund.
If investment is made in ELSS (Equity Linked Saving Scheme) then the investor should keep his investments invested for more than 3 years in order to claim the benefits of section 80C. As per Section 80C the investor will get the benefit of upto Rs 150000/- under Income Tax Act. So basically lock-in period in an ELSS is for 3 years. Investor whose income is more than Rs 250000 i.e falls in the taxable limit prefers to invest in ELSS so as to gain tax benefits. Birla Sunlife Tax Relief 96 Fund and HDFC Tax-saver Fund are few ELSS funds. Mutual Funds having a compulsory lock in period continue the same way irrespective of the mode of payment. For example ELSS having a lock in period of three years remains constant whether invested online or through a financial advisor. Same goes for investments without lock-in periods. Basically an investor should keep in mind the concept of lock-in before making investments in a mutual fund.
While investing the capital in any field, one parameter that bothers most of the investors is the Lock-in period and the same applies to mutual funds industry as well. Lock-in period represents the time period for which your money will remain locked in within the mutual fund company for a specific period of time. The lock in period in mutual funds differs from scheme to scheme and the types of funds.
Mutual funds can be categorized into three categories:
1) Open- end mutual funds: The shares of these funds are bought and sold on demand at their current NAV or Net Asset Value which is generally calculated at the close of every trading day.They can be sold or redeemed any time but an exit load (typically 1%) can be applicable during the exit which depends on the time period of the fund. In general, when mutual fund managers talk about mutual funds, they are usually mean open-ended funds as these are far popular among investors.
2) Closed- end mutual funds: A closed end fund is a mutual fund scheme where investment is locked in for a specified period of time. The investors pool in their money at the offer period and can only redeem their units at the end of the investment period or maturity.
3) Exchange-traded funds: These funds can be considered as a hybrid version of ETFs and open ended mutual funds. It allows the NAV based mutual fund to trade on exchange in a real time environment.
Most of the mutual funds in India generally don’t have a lock-in period. The only exception in open-end category is “Equity –Linked Savings Scheme (ELSS), popularly known as Tax-saving mutual funds. The lock-in period for these funds is 3 years. These funds enable you to get tax benefits under section 80C of the Income Tax Act.
Open end mutual funds or funds without lock-in period are the most common type of funds among investors in the world. But if redeemed before a certain time period (usually one year but it may vary), mutual funds charge a small fee called exit load. After this period, no fee is levied for the exit or redemption.