No Lock-in Period

I advocate financial products with no lock-in period. The customer should be allowed to withdraw the product at any time, based on a fair market price.

What is a fair market price?

If you buy a share or bond, you pay a fair price based on the price that other people are willing to sell to you. If you sell a share or bond, you get a price that other people are willing to buy.

This concept applies to a unit trust. You buy and sell based on the net asset value of the fund, which is compute on its market value of the underlying assets.

If you put your money in a bank account, you can take it out at any time. You only lose on the interest for premature withdrawal.

Some financial products (e.g. endowment, whole life or structured product) lock you for a long period, say 5 years or longer. If you wish to withdraw in the earlier years, you have to suffer a large penalty. This penalty can be up to 10% of a lump sum investment or more than one year of a regular investment.

You should avoid any product that has a high penalty and a long lock-in period.

It is possible to design an endowment or whole life policy that has low distribution cost, small penalty and no lock-in period.