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Dividends in ELSS

Anish Jain wants to know if the dividends declared by an ELSS would be locked-in or can be redeemed

Investments in ELSS schemes have a lock-in period of three years. Is this applicable to the dividends declared under the scheme as well? For example, if I purchase 100 units of any ELSS scheme on April 1, 2008, the lock-in period will be till April 1, 2011. If I am allotted 10 additional units as dividend on March 30, 2009, will the lock-in period be applicable to them also? Does it mean that the additional units can be sold only after March 30, 2012?

—Anish Jain

You are right about equity linked savings schemes (ELSS) having a lock-in period of three years. Once that period is completed, you can redeem your investment.

In the case of dividend reinvestment, the dividend declared is reinvested in the scheme itself. So it would be locked in for three years as well.

In case of dividend payout, the dividend amount is distributed to the investor and so no lock-in period is applicable on it.

Now let's talk about your example. You get 10 additional units on March 30, 2009. These units would be locked-in for three years from the date of reinvestment. So, you would only be able to redeem these 10 units post March 30, 2012. However, the units allotted initially can be redeemed on or after April 1, 2011.

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