Lock in Period Meaning

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Definition:

Lock-in period is the time period for which the investment or the invested amount cannot be withdrawn or sold. The period is commonly used for ULIPs,mutual funds, etc.

Description:

Insurance policies come with the lock-in period giving investors a chance to preserve liquidity. Lock-in period refers to the number of years in which investors cannot withdraw or sell the funds they have created.

Once the lock-in period is over, the investor must not withdraw the funds immediately rather they should observe the performance of the funds. A lock-in period is not the same as the number of investment years. Lock-in period motivates the investor to stay invested and reap the benefits after a long run. When the investments are goal based investment, it is good to have a lock-in period.

Example:

Manan bought a ULIP plan to save money for his long-term goal. A ULIP policy comes with the lock-in period of 5 years. During this time, Manan cannot withdraw the invested funds. The lock-in period kept Manan motivated to continuously pay the premium and reap high benefits.