Key idea
Two things that restrict when you can take your money out. One is a small penalty for leaving early; the other locks it in entirely for a set period.
Funds can limit how freely you exit, in two different ways. An exit load is a small fee charged if you redeem within a short window. A lock-in is a period during which you cannot withdraw at all. Knowing both prevents a nasty surprise when you try to take money out.
The two restrictions
| Restriction | What it does | Typical example |
|---|---|---|
| Exit load | A penalty for leaving too soon | ~1% if redeemed within a year |
| Lock-in | No withdrawal for a set period | ELSS: 3 years; ULIP: 5 years |
Why they exist and how to plan around them
Exit loads discourage short-term churning, which protects long-term investors in the fund. Lock-ins come with products that get a tax benefit in return (like ELSS) or are designed for a long horizon. Neither is a trap if you know about it: you simply avoid investing money you will need before the restriction lifts.
Check the exit load and any lock-in before you invest, and match the fund to money you genuinely will not need soon. A lock-in on money you later need urgently is an avoidable, self-inflicted problem.
Finished reading?
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