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What is a Lock in period?

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Lock in period

Lock in period is the period for which the funds of the investor is locked in , in the hands of the institutions in which the fund is deposited. The investment will not be allowed to redeem the investment before the lock in period ends. This is more pronounced in investments which offer Tax Benefits by way of exemption under section 80C of Income Tax Act, 1961.

Example – Lock in period

For example, Banks offer Tax savings fixed deposits schemes with lock in period of 5 years. The minimum term of deposit is 5 years and can go up to 10 years. If one invests in this product, he will not be able prematurely close it before 5 years irrespective of the total term of the deposit. Neither he will be able to avail loan against this fixed deposit before the 5 years term is completed. He however will be able to avail exemption under section 80C of Income Tax Act, 1961 for the amount of the fixed deposit.

Lock in period in other investments

Various insurance policies and mutual fund schemes which offer exemption under section 80C  have a lock in period of 3 years, meaning that they can’t be redeemed before the policy has been in force for at least 3 years.

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Sreya Ray is working as a Manager at State Bank of India. She is a voracious reader and a passionate writer. Her life is complete with her daughter and the support of her husband and the inspiration of her parents. Sreya loves multi-tasking and is a dreamer. If she don't create anything on a day,She feels that she had wasted my day.

2 COMMENTS

  1. It’s a great way to protect your investment and make some interest. The Tax Exemptions are attractive, too.
    It might be a little frustrating that you can’t access your funds, but if you think you’ll need your money before the end of the lock in period then you should choose a different type of deposit.
    Most of us get to times of need for our money so maybe it’s a good idea to have some other deposits that you can access AS WELL as a deposit with a lock in period.

  2. Lock in periods provide tax exemption which is much sought for specially by the business class of our country. But the only disadvantage is what if any emergency happens? No loans can even be taken against it. Is the amount really safe in the lock in period?

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