Mutual Funds Without Lock-in Period (2024)

Top Liquid Mutual Funds without Locking Period

What is Lock-in Period in Mutual Fund?

The Lock-in period is the duration during which you cannot sell or redeem your mutual fund units. However, once the lock-in period completes, you can sell the mutual fund units any time you wish. Mutual fund investments often have a lock-in period. A lock-in period applies to all closed-end mutual funds. Most open-ended mutual funds come without a lock-in period. However, except for one, Equity Linked Savings Scheme (ELSS) funds are open-ended equity schemes that have a three-year lock-in period.
In other words, investors will not be able to sell their shares during this time. Investors can opt to stay invested in the fund for as long as it survives after this term ends or sell their mutual fund units.
Though open-ended equity funds do not have any lock-in period, they have an exit load. Exit load is a fee that the fund house charges for exiting the fund within one year.
Having a lock-in period will affect the investment’s liquidity. In other words, the investments are illiquid for the duration of the lock-in tenure. You will not be able to exit the scheme prematurely. Thus, it is mandatory to hold on to your investments until the lock-in period is over.

Which Funds has no Lock-in Period

Open-ended debt, hybrid and equity mutual funds have no lock-in period. Except for ELSS schemes under the equity category. You can sell mutual funds without a lock-in period at any time. There is no restriction on when to sell and how long to hold your investments. Thus, you can exit the scheme once you have made significant returns or when the fund is underperforming. Or when your investment goals no longer align with the fund’s objectives.
On the other hand, closed-ended equity and debt schemes (fixed maturity plans) and Equity Linked Savings Scheme (ELSS) funds come with a lock-in period. During the lock-in period, you will not be able to sell or redeem the fund units. Moreover, with funds that have a lock-in period, you will not be able to exit the scheme even if it is underperforming or your investment goals change.
Having a lock-in period will help investors generate significant returns. The majority of investors are inexperienced and react to minor market movements. A lock-in period will encourage investors to commit to the investment for the entire tenure. Thus, allowing them to enjoy significant returns.
Mutual fund investments have a lock-in period to maintain fund stability. Excessive selling may result in an increase in redemptions, posing a liquidity problem for the fund. As a result, the lock-in period will aid in the preservation of liquidity. Investors will be unable to sell their shares during the lock-in period, ensuring the fund’s assets remain steady. This is in the best interests of investors.

To Conclude

While investing in a mutual fund, you should first identify funds that perfectly align with your investment needs. For example, if you wish to save for your retirement, which is 25 years from now, you can invest the majority of your funds in equity schemes. Even under the equity category, you can have asset allocation across large-cap, mid-cap, value funds, etc. Since the investment tenure is long term, you can take a comfortable amount of risk with your funds. Also, as equity schemes tend to generate a higher return in the long term, equity investments will help you generate a significant corpus for your goal.

Furthermore, the lock-in period can be the least of your concerns when your investment tenure is long-term. Since you are certain to stay invested for tenure. Therefore, it is important to give more weightage to other qualitative and quantitative factors while selecting a mutual fund.

Next, if your goal is tax saving, ELSS mutual funds are your best bet to generate significant returns. Also, these schemes have the lowest lock-in period in comparison to other tax saving schemes under Section 80C of the Income Tax Act, 1961. ELSS funds have a three-year lock-in period, and investments up to INR 1,50,000 per annum qualify for tax deduction under Section 80C of the Income Tax Act, 1961.
Thus, choosing a fund that has a lock-in period or not will depend only on your investment purpose, goal, and tenure.

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