Lock-In Period in Mutual Funds, NPS, NSC, PPF, and Tax-Saving FD – All You Need to Know

When you invest, one of the first things you check is “When can I get my money back?” That’s where the concept of a lock-in period comes into play.

The lock-in period is the minimum time you must stay invested in a financial product before you can withdraw your money. This rule is set by the government, regulators, or the product issuer — and it can vary widely depending on where you invest.

For Indian investors, five popular investment options with lock-in periods are:

• Mutual Funds (ELSS).

• National Pension System (NPS).

• National Savings Certificate (NSC).

• Public Provident Fund (PPF).

• Tax-Saving Fixed Deposit (FD).
  

Let’s break down what each means for you.

1. Lock-In Period in Mutual Funds (ELSS)

Equity Linked Savings Schemes (ELSS) are tax-saving mutual funds under Section 80C.

• Lock-in period: 3 years (shortest among all Section 80C investments)

• Why it matters: You can’t withdraw or switch your units before 3 years from the date of investment.

• Example: If you invest ₹1 lakh on 1st April 2025, you can redeem it only on or after 1st April 2028.

Pro Tip: Even after the lock-in, staying invested longer may give better returns as these are equity-oriented schemes.

2. Lock-In Period in National Pension System (NPS)

The NPS is designed for long-term retirement savings.

• Lock-in period:

  • Till retirement age of 60 for Tier I accounts (mandatory for tax benefits)

  • Partial withdrawals allowed after 3 years under specific conditions (e.g., higher education, marriage, medical treatment)

• Why it matters: Encourages disciplined retirement savings.

• Example: If you start at 30, you’ll invest for at least 30 years before full withdrawal is allowed.

Tip: NPS also allows you to defer withdrawals up to age 70 for continued growth.

3. Lock-In Period in National Savings Certificate (NSC)

NSC is a government-backed small savings scheme.

• Lock-in period: 5 years

• Why it matters: You cannot encash it before maturity, except in exceptional cases like the death of the holder.

• Example: If you buy NSC on 15th May 2025, you can access your money only on or after 15th May 2030.

Tip: The interest earned is taxable, but the reinvested interest qualifies for Section 80C deduction in the first four years.

4. Lock-In Period in Public Provident Fund (PPF)

PPF is one of India’s most popular long-term savings products.

• Lock-in period: 15 years from account opening date

• Partial withdrawals: Allowed from the 7th year onwards under certain limits

• Why it matters: Offers guaranteed returns with tax-free interest, making it ideal for long-term goals.

• Example: Opened in FY 2025–26, your account matures in FY 2040–41.

Tip: You can extend PPF in 5-year blocks after maturity to keep earning tax-free returns.

5. Lock-In Period in Tax-Saving Fixed Deposit (FD)

A tax-saving FD is similar to a regular bank FD but qualifies for Section 80C deductions.

• Lock-in period: 5 years

• Why it matters: You cannot take a loan against it or break it before maturity.

• Example: Deposit ₹1 lakh on 10th January 2025, and you can withdraw only on or after 10th January 2030.

Tip: Interest earned is taxable, so factor this into your return expectations.

Investment Option	Lock-In Period	Tax Benefit (Section 80C)	Returns	Interest/ Gains Taxability	Liquidity During Lock-In	Loan Facility
ELSS Mutual Fund	3 years	Up to ₹1.5 lakh deduction	Market-linked (Equity-oriented, historically ~10–12% p.a. over long term)	LTCG tax @10% above ₹1 lakh gains	No premature withdrawal	Not available
NPS (Tier I)	Till age 60 (partial withdrawal after 3 years for specific purposes)	Up to ₹1.5 lakh (80C) + ₹50,000 (80CCD(1B))	Market-linked (Equity + Debt mix)	Partial withdrawals exempt; lump sum at retirement partly taxable	Partial withdrawal under specific conditions	Not available
NSC	5 years	Up to ₹1.5 lakh deduction	Fixed (~7–7.7% p.a., government-set)	Interest taxable; reinvested interest eligible for 80C (first 4 years)	No premature withdrawal (except death)	Available
PPF	15 years (partial withdrawal from year 7)	Up to ₹1.5 lakh deduction	Fixed (~7–8% p.a., government-set)	Interest fully tax-free	Partial withdrawal allowed from year 7	Available
Tax-Saving FD	5 years	Up to ₹1.5 lakh deduction	Fixed (~6–7.5% p.a., bank-dependent)	Interest taxable as per slab	No premature withdrawal	Not available

Why the Lock-In Period Matters

Lock-in periods aren’t just about restricting withdrawals — they encourage financial discipline and align investments with long-term goals.

• They ensure you don’t panic and withdraw when markets are volatile.

• They help you maximise tax benefits under Section 80C.

• They can enhance returns by keeping your money invested for longer durations.

However, before committing, make sure the lock-in period suits your liquidity needs. If you might need money sooner, choose products with shorter or no lock-in.

Conclusion

Whether you choose ELSS, NPS, NSC, PPF, or a Tax-Saving FD, understanding the lock-in period is crucial to avoid liquidity shocks and plan your finances effectively.

Shorter lock-ins like ELSS offer flexibility, while longer ones like PPF and NPS enforce discipline for long-term goals like retirement. The key is to match your investment horizon with the product’s lock-in so your money works for you without creating cash flow stress.

FAQs on Lock-In Periods

Can I break the lock-in period in any of these investments?

Generally, no. Exceptions apply for death of the investor or specific emergencies (like in NPS partial withdrawals or NSC encashment).

Which tax-saving investment has the shortest lock-in?

ELSS mutual funds — with a lock-in of just 3 years.

Is the interest earned during the lock-in period taxable?

It depends. ELSS gains are taxed as capital gains, NSC and tax-saving FD interest is taxable, PPF interest is tax-free, and NPS withdrawals have partial tax exemptions.

Can I take a loan against these investments during the lock-in?

You can take loans against PPF and, in some cases, against NSC. Not allowed for ELSS and tax-saving FD.

How should I decide which lock-in is right for me?

Consider your financial goals, time horizon, risk appetite, and need for liquidity before choosing. Short-term goals may not suit long lock-in products.