Did you know? | Dividend reinvestment in ELSS locks your money forever

Did you know? | Dividend reinvestment in ELSS locks your money forever
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First Published: Tue, Jan 19 2010. 12 42 AM IST
Updated: Tue, Jan 19 2010. 12 42 AM IST
Your equity-linked saving scheme (ELSS) fund carries a lock-in of three years. However, if you choose the dividend reinvestment plan (instead of growth or dividend), there is a good chance that a portion of your investment would get locked in forever.
The problem
Historical records show that every ELSS fund declares a dividend at least once during any given three-year period. In a dividend reinvestment plan, the dividend gets reinvested into the fund. Any such reinvestment is considered fresh investment and gets locked in for three more years. Subsequent dividends declared on this reinvested amount gets reinvested again for yet another three years. This way, you get into a vicious cycle of perpetual investment.
The way out
Most fund houses allow you to switch from a dividend reinvestment option to a dividend option. For this, you need to write a letter, requesting for a change and/or fill up a “change in option” slip at the bottom of your account statement.
A switch to dividend option is easy. A switch to the growth option is also possible with some fund houses. However, your fund may impose a lock-in from the time you switch your units to the growth option.
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First Published: Tue, Jan 19 2010. 12 42 AM IST
More Topics: Tax Special 2010 | Dividend | Investment | ELSS | Money |