Updated on: Jan 13th, 2022
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4 min read
A major question that arises in the minds of those planning to invest in mutual funds is “Will my money get stuck?” Well, no, your money is never stuck. Instead, your money is going to get invested. We have covered the following in this article:
Mutual fund investors should note that the money they invest is not going to get stuck; it gets invested in instruments that have the potential to provide excellent returns. No fund house will utilise your investment for their benefit. They will always invest your money in the assets that are in sync with the investment mandate of the mutual fund plan. Hence, there should be no doubts over money getting stuck anywhere. Some mutual fund plans always have a certain amount of the fund in cash to facilitate liquidity and redemption.
Most mutual funds are open-ended. Meaning, investors can enter and exit as and when they want, with not having to pay any exit load. However, there are mutual funds that come with a lock-in period, for example,equity-linked savings scheme (ELSS) or tax-saving mutual funds. ELSS mutual funds come with a lock-in period of three years and investors cannot redeem their investment in this period. Therefore, investors must necessarily check for the lock-in period in the offer document before they invest. If not, then their investment would stay invested until the completion of the lock-in period. However, money does not get ‘stuck’ as it would be invested in suitable options to get the best possible returns.
Your investment would be managed by the fund manager who will take calls on where and when to invest. However, all the related investment decisions that the fund manager would make will always be in line with the investment mandate of the fund. For instance, if you have invested in a debt fund, then the fund manager will be able to invest only in debt instruments such as treasury bills, government bonds, high-rated corporate bonds, and so on. Again, your investment is not going to get stuck with the fund manager. You can redeem your investment as and when you want if there is no lock-in period. Even if you are not investing and have your money parked in a mutal fund plan, then it would continue to earn returns. Therefore, there is no question of money getting stuck in mutual funds.
Investors should not worry about their investments in mutual funds getting stuck. It never happens. Your money is always invested and never stuck anywhere. If there is no lock-in period, then you can redeem your money anytime.
Money invested in mutual funds is not stuck but utilized in investments to provide returns. Some funds have lock-in periods, and fund managers manage investments according to fund mandate. Investors can redeem anytime without a lock-in. Direct mutual funds save taxes with 0% commission.