Administrative • 5 min read

Lock-in Periods and Minimum Investments in SIPs

Information Disclaimer: This article is strictly for educational, factual, and mathematical illustration purposes. It does not contain financial advice, tax guidance, or investment recommendations. All mutual fund investments are subject to market risks.

1. Minimum Investment Thresholds

Mutual fund schemes establish minimum capital thresholds for both initial lump sum purchases and recurring Systematic Investment Plans. These limits are set by the Asset Management Companies (AMCs) and vary across schemes.

Factual limits typically include:

  • SIP Minimum Installment: For most equity schemes, the minimum monthly contribution starts at ₹500 or ₹1,000. Some index funds or specialized schemes permit a minimum installment of ₹100.
  • Lump Sum Minimum: One-time lumpsum entries generally require a higher minimum threshold, commonly starting at ₹5,000.

2. The Mechanics of ELSS Lock-in Periods

Equity Linked Savings Schemes (ELSS) are a specific category of equity mutual funds in India that carry a statutory lock-in period of **3 years (36 months)**. Investors cannot redeem or withdraw their units during this lock-in duration.

A common administrative point of confusion is how the lock-in period is calculated when investing via a SIP.

Rule: Each individual SIP installment is treated as a distinct investment with its own separate 3-year lock-in timeline.

Let us look at a factual timeline example:

  • Installment 1 (invested on Jan 1, 2026): Unlocks exactly three years later, on Jan 1, 2029.
  • Installment 2 (invested on Feb 1, 2026): Unlocks on Feb 1, 2029.
  • Installment 12 (invested on Dec 1, 2026): Unlocks on Dec 1, 2029.

Therefore, if you choose to terminate a monthly ELSS SIP after one year, the units purchased in the twelfth month will remain locked for another two years after the first month's units have unlocked.

3. Exit Loads: First-In-First-Out (FIFO) Calculations

An **Exit Load** is a fee charged by mutual funds when an investor redeems their units before a specified timeframe. The exit load is designed to discourage short-term redemptions and is typically structured as a percentage of the redemption value (often 1% if units are redeemed within 1 year or 365 days of allocation).

Similar to ELSS lock-in periods, the exit load duration is calculated on a **First-In-First-Out (FIFO)** basis for each individual installment:

If you start a monthly SIP on January 1, 2026, and decide to redeem your entire portfolio on January 15, 2027:

  • Units purchased in **Month 1 (Jan 1, 2026)** have completed 380 days. They are **exempt** from the exit load.
  • Units purchased in **Month 2 (Feb 1, 2026)** onwards have completed less than 365 days. They are **subject to the exit load fee** (e.g., 1% deduction on their current value).