What to do when locked-in assets outlive the investor

Heirs can claim ownership but may have to wait out lock-ins on applicable MFs, RBI bonds

- Khyati Dharamsi

Cancer consumed the life of 40-year-old V. Panda in January 2024. Nearly two years later, all assets belonging to the deceased marketing professional have been transferred to his parents and liquidated, barring two investments in mutual funds.

These funds totalling ₹345,000 are blocked. That's because the investments were made in mutual fund schemes that have a mandatory lock-in period. So, Panda’s parents will have to wait until the end of the lock-in and subsequently start the redemption paperwork to liquidate the investment if they wish.

Panda's case wasn’t about documents not being in order, but about a product that comes with a lock-in. And, this is why it’s important to understand the rules around lock-ins.

Take the case of a nonresident Indian (NRI), residing in the US, whose septuagenarian father passed away six months ago. His father had a bulky investment in Reserve Bank of India’s Floating Rate Savings Bonds, which will mature at the end of 2026.

While he has been able to redeem investments in stocks and mutual funds, and has received funds from life insurance companies, the bonds will mature only a year later and, hence, he will have to wait to close the linked bank account. He didn’t want to disclose the name.

Lock-in and products

A 5-year lock-in is applicable to tax-saving fixed deposits, Post Office Small Savings Schemes as well as Retirement Funds and Children’s Funds of mutual funds, while Equity-Linked Savings Schemes (ELSS) have a 3-year lock-in.

Mutual funds

Upon the death of an investor, the investments go through two processes. First, the investment is transferred to the nominee or the legal heir, and the second is the redemption of the funds.