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Shyamal Banerjee/Mint
Shyamal Banerjee/Mint

Can’t stay invested? Lock in your money

Don't lock in all your funds and keep aside enough liquidity for short- to medium-term needs

In making a financial plan, which ultimately gets you a big lump sum at the end of your working life or at strategic frequencies as per your goals, one of the implicit requirements is to remain invested. If you are one of those who doesn’t have the patience to stay invested for many years, you may want to try products that offer a lock-in.

Often, short-term news and events come in the way of our long-term investment decisions; putting money aside in locked in products saves a lot of needless changes in such times of uncertainty. The dilemma is most relevant in case of equity as stock market prices are affected hugely by short-term news. You can apply this approach even for less volatile asset classes for long-term planning.


If you invest in equity, you know there is merit in letting growth cycles for businesses and economies play out over 5-10 years or more. Equity investments are most effective in the very long term. Despite this, most direct equity investors are unable to remain invested through such long periods thanks to interim negative events which pull down prices. While aggregate data for direct equity investments is hard to get, according to the Association of Mutual Funds in India (Amfi), at least 42% investors in equity funds redeem within two years of investing.

Locking in your equity investment will only mean that you can’t redeem when things get confusing in the near term and will be forced to let the investment plays out its course. Raghvendra Nath, managing director, Ladderup Wealth Management, agrees that the concept (lock-in) may be good, but he adds that investors also look for liquidity.

If liquidity is not a concern, one such option is to go for closed-end equity schemes with a good track record. Equity-linked savings schemes (ELSS) are an option. Primarily, they are meant to offer tax deduction benefits, but there is no reason why you can’t invest beyond the 1 lakh threshold in that product, provided the fund choice is right.

From time to time opportunities to invest in other closed- end equity schemes come up. For example, IDFC Asset Management Company Ltd recently launched a three-year closed end equity scheme, IDFC Opportunities Series I, focused on stocks with small and medium market capitalisation companies. Keep an eye out for other such options that come up.

If you are unsure of putting a big chunk into equity in one go, you may even consider systematic transfer plans or STPs, where the lump sum can be invested in a short-term or liquid fund temporarily and on fixed (monthly or quarterly) dates, smaller sums get invested into an equity fund. Remember to pick the liquid fund from the same fund house to which your equity fund belongs.

Fixed income

Short-term: For your fixed income investment needs between 2 and 5 years, choose between long-term fixed maturity plans (FMPs), which are closed-end products, and fixed deposits (FDs). While FDs are available for a variety of tenors ranging between 1 and 5 years, FMPs are typically come with tenors of 13 months to 36 months.

For a tenor less than that, look for good performing short-term funds. Picking one with a high exit load may work for you as it will act as a deterrent to premature withdrawals.

Long-term: According to Suresh Sadagopan, a Mumbai based certified financial planner, for financial goals which stretch beyond 10 years, you can look at long-term lock-in products such as Public Provident Fund and Employers’ Provident Fund, which give good returns and are tax-efficient too.

Tax-free bonds are also a good option; the tenors here are as much as 10-15 years. They don’t have a redemption clause but can be sold in the secondary market if you need to liquidate.


Gold needn’t be a mandatory part of your overall asset allocation, but if you are interested, then for your long term lump sum investment (only to shore up to 5-10% allocation in the overall portfolio) think about buying physical gold which is difficult to dispose of simply and quickly.

Nath adds, “For a 10-15 years buy-and-hold purpose, physical gold makes more sense as there are no annual charges (as compared with exchange-traded funds) to contend with." Choose physical gold only if you intend holding for 10-15 years; in the short-term, the commission of around 4% for buying this may not be worthwhile. Additionally, there is the problem of purity check on gold, which is mostly up to mutual trust rather than a technical evaluation or guarantee.

If physical bars or coins are not what you want, given the various checks on purity and the inconvenience of storing it, go for fixed STPs in gold exchange traded funds (ETFs), which come with the advantage of purity checks and can easily be kept in your demat account.

Things to keep track of

The mindset is to shy away from locked in investments as knowing that you have access to redeem funds is reassuring.

Most planners suggest that educating people about investment discipline is more important than locking in. Says Karthik Jhaveri, founder and director, Transcend Consulting Pvt. Ltd, “A person who doesn’t have the discipline to stay invested is unlikely to want to invest in locked-in products too. Even if they do, it will be for a specific purpose like tax saving and that too in small amounts." At the same time, a locked-in product will help you get started on that much needed investment discipline of remaining invested. Structures like the National Pension System are an ideal way to lock in money you need only at retirement; there are too many barriers if you want to take the money out before that. Says Sadagopan, “NPS is a good product for long-term savings, but the annuity which comes from it is taxable and it will become more attractive if that changes."

Locking in your investments can help you effectively manage and recover value in the long term. In the mean time, also ensure you don’t lock in all your funds and do keep aside enough liquidity for short- to medium-term needs.

Lastly, don’t forget to evaluate and compare post-tax returns across products before buying.

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