Some of the saving schemes and more precisely the ones that offer tax advantage including PPF, tax-saving fixed deposit scheme, senior citizen savings scheme, ELSS and NSC come with a lock-in period. During this period the investor is not allowed to redeem his investment but what if the investor in some of these schemes dies unfortunately even before the completion of this period.
Here's a detailed understanding on the same in respect of different investment options:
1. 5-year tax saving fixed deposit scheme: The fixed deposit scheme with a lock-in period of 5 years is allowed to be redeemed with premature payment without penalty to the nominee or legal heir in case the depositor in the scheme dies before the maturity of the fixed deposit.
2. PPF: The fund meant to provide retirement benefits during your sunset years has a long lock-in period of 15 years and in case the subscriber to the fund dies before this term, legal heirs or nominee can withdraw the entire invested amount prematurely. But to make the claims on it, nominee has to produce some of the requisite documents.
In case the PPF account is held by an HUF, the account cannot be closed prematurely on the death of the Karta and instead it shall be continued until maturity by the newly appointed Karta.
Also, note in case any amount is deposited from the income of the deceased to the PPF account in the year of his death it shall not be eligible for return as interest and also tax rebate.
3. Senior Citizen Savings Scheme or SCSS: If the depositor in the scheme dies before the lock-in period of 5 years, the nominee is allowed to immediately claim the deposit amount under the scheme and close the account by following the stipulated guidelines.
4. NSC: With a lock-in period of 5 years, the scheme can be foreclosed and encashed in case the sole holder or either of the holder in case of joint ownership meets unfortunate death. Also depending on the discretion of the nominee, the investment can also be continued until maturity and proceeds shall then be payable at a proportionate rate.
5. ELSS: For equity-linked saving schemes, the lock in period is of 3 years and in case the investor dies before this time then nominee is allowed to redeem the investment only on completion of a year's time from the date when units were allotted to the investor.