What does lock-in period mean in mutual funds?

The lock-in period is an important concept for those investing in mutual funds. This period represents the minimum amount of time an investor must stay invested in a mutual fund. A lock-in period usually plays its role in instruments like Equity Linked Savings Schemes (ELSS) or retirement funds. During this tenure, investors cannot sell their units, either offline or through an online trading platform. This builds stability in the fund and aligns with the long-term investment goals.

Importance of Lock-In Period

A lock-in period instils discipline in investors, encouraging them to invest for a longer period of time. Moreover, since the amount is locked in, the fund can offer better returns. It discourages impulsive investment decisions based on short-term market movements.

In the context of ELSS and retirement funds, the lock-in period serves the dual purpose of tax benefits and sustained growth, enabling a strategic approach to wealth creation. Over the longer run, this period contributes to a more stable and rewarding journey in investments.