Understand lock-in period before you invest in these tax-saving products

While investing in a tax-saving product, one must ensure that he’s aware of the mandatory lock-in period. You won’t be allowed to withdraw your money before a specified time. However, some instruments allow pre-mature withdrawals, but with certain conditions. Here’s a list of 5 popular tax-saving investments and how their lock-in works:

Tax Saving Fixed Deposit
The tax saving FDs have a lock-in period of 5-10 years. Currently, investors get an interest rate of 5% to 7% on such deposits and there is no option for pre-mature withdrawals. Under Section 80C there is a rebate of 1.5 lakh rupees on investments made in tax saving FD, but banks deduct TDS on the interest earned.

Public Provident Fund (PPF)
PPF has been one of the most preferred tax-saving instrument. Currently, it fetches 7.10% interest on the investments. The lock-in period is 15 years, however premature withdrawals are allowed under specified conditions. Sixth year onward, investors can withdraw 50% of the balance of the fourth year. You can also take a loan against PPF at 1% interest rate. As far as tax is concerned PPF falls under the category of Exempt, Exempt, Exempt (EEE) i.e. your deposits, interest and withdrawal all are tax free.

National Pension Scheme (NPS)
It is a pension plus investment scheme. NPS subscribers are not allowed to withdraw money until 60 years of age. Post retirement, subscribers get 60% of the deposit as lumpsum, and the remaining 40% is rolled out as annuity. There is an exemption of up to Rs 1.5 lakh under section 80C on contribution made towards NPS. An additional exemption of Rs 50,000, over and above 80C can be availed through section 80CCD.

National Saving Certificate (NSC)
NSC can be taken from the post office. The minimum amount of investment in this can be of only Rs 100.

You can sign-up for NSCs via post office with an investment as low as Rs 1,000. There is a mandatory lock-in period of five years. Money can be withdrawn prematurely only if the account holder dies. If the NSC is closed within an year, there’s no interest benefit . However, if you withdraw the money after an year, you’ll be eligible for interest benefit.

Equity Linked Saving Scheme (ELSS)
The ELSS funds have a lock-in of 3 years. If you invest through SIP, then FIFO i.e. ‘First in first out’ rule will imply. Every instalment of SIP matures in three years, that is, the entire amount matures only after 6 years. But if you want, you can keep withdrawing the matured SIP as and when it matures.