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Which Debt Funds Do Not Have a Lock-In Period? What Is the Reason?

Which Debt Funds Do Not Have a Lock-In Period? What Is the Reason?

Vlada Karpovich from Pexels

Debt funds refer to mutual funds that invest in debt instruments. Depending on your financial goals, investment horizon, and varying risk-return profiles, you can choose from different types of debt funds. Most debt funds do not have a lock-in period.

What is a lock-in period?

Lock-in or lockup period refers to the timeframe for which you cannot sell your investments. The lock-in period applies to IPOs (Initial Public Offerings) of private equity, hedge funds, startups, and some mutual funds. Open-ended schemes generally do not come with a lock-in period except investments made in ELSS (Equity Linked Savings Scheme). 

 Which Debt Funds Do Not Have a Lock-In Period? What Is the Reason?

Types of debt funds with no lock-in period

Debt funds aim to earn returns for investors. They allocate funds in bonds and other fixed-income securities. 

  1. Overnight funds: These have a 1-day maturity and are usually money market instruments. Their primary objective is to offer convenience and liquidity to the investor instead of high returns. 
  2. Liquid funds: This type of debt fund refers to investments in high-quality fixed instruments with a maturity period of 91 days. These funds help earn steady returns with minimum NAV volatility. Investors who want to put temporary cash surpluses to productive use should start a SIP in liquid funds. 
  3. Ultra-short duration funds: Investors with an investment horizon of a minimum of 3 months can invest in these funds. While they do not offer guaranteed safety of capital or assured returns, the risk is negligible. With no lock-in period, you can submit a redemption request at any time and receive your money in 1 to 2 business days. 
  4. Money market funds: These mutual funds are used for relatively low-risk holdings in a portfolio. The investor receives earnings from a money market fund in the form of dividends. 
  5. Short duration funds: You can evaluate short duration funds from three main perspectives: return, risk, and expenses. While there is no lock-in period, some of these debt funds carry an exit load that is deducted for early withdrawals. You must check the exit load period when you choose a SIP for such a mutual fund. 
  6. Dynamic bond funds: These mutual funds are dynamic, which means that the fund manager keeps changing the portfolio’s maturity based on the fluctuating interest rate regime. If trends suggest a rise in interest rates, there is a shorter maturity period. If the predictions indicate a decline in interest rates, the maturity is longer. 

Why is there no lock-in period?

Debt mutual funds are short-term funds, which is why they do not have a lock-in period. They give investors the freedom of high liquidity and easy withdrawal of their money on any business day. 


If you want to start investing in debt mutual funds with no lock-in period and higher returns, the Tata Capital Moneyfy App  is what you need to start.