Vetted Wealth · Choosing an Advisor

Exit, lock-in and getting your money out

Every pitch is about getting in. The part that is glossed over is getting out, and that is where people are quietly trapped. "You can exit anytime" is one of the most common and least reliable lines in Indian finance. Before you commit, find out exactly what leaving would cost, and get it in writing.

Choosing an advisor · about 5 minutes

The four things that make leaving expensive

A product can trap your money in four ways: a lock-in that forbids exit, a load or surrender charge that shrinks what you get, tax on the way out, and plain illiquidity where there is no easy buyer.

How it actually shows up

Mutual funds: Mostly liquid, but many charge an exit load if you leave within a year, and selling within a year triggers higher short-term capital-gains tax. Tax-saving ELSS funds carry a three-year lock-in.
ULIPs: A mandatory five-year lock-in. Leave earlier and your money moves to a discontinuance fund, not back to you in full.
Endowment and traditional plans: Surrender early and you often get back far less than you paid, sometimes a fraction, in the first few years. This is where exit hurts most.
PMS and AIFs: PMS may carry exit loads in the early years. Many AIFs cannot be exited at all until the fund's tenure ends, often years away.
Fixed deposits and real estate: An FD broken early loses some interest. Property can take months to sell at a price you do not control, the definition of illiquid.

The line to watch

"You can exit anytime" should always be met with "show me the exit terms in writing." The gap between the casual reassurance and the actual clause is exactly where people discover, too late, that their money is stuck or that leaving costs a painful amount. None of this means lock-ins are bad. Sometimes they enforce useful discipline. It means you should choose them knowingly, not discover them on the way out.

What to check before you commit

Ask for the lock-in period in writing, and whether any early exit is allowed at all.
Ask for the exit load or surrender charge, and what you would actually receive if you left in one year and in three.
Ask about tax on exit, since capital-gains tax can take a real bite, especially on an early sale.
For anything private or pooled, ask how and when you can realistically get your money back, not just in theory.

Decide how you will leave before you decide to enter.

The easiest money to commit is the hardest to get back. A product worth your money can survive you reading its exit terms first. If asking how to leave makes the conversation awkward, that awkwardness is the answer.

This guide is educational and general, not advice on any specific product. Exit terms and tax rules change and vary by product, so confirm the current terms in the offer document before you act.

Vetted Wealth