ELSS Schemes provide for 3 options while investing like any other equity scheme.
The options being
1) Dividend Payout
2) Dividend Reinvestment
3) Growth.
Dividend Reinvestment is an option which you can avoid when investing in tax saving ELSS.
Whenever Dividend is declared and reinvested in tax saving ELSS, it is subject to a lock-in period of three years.
So, there is a high probability that a fraction of your dividend goes on a continuous circle of 3-year lock-in. In that sense, you will never be able to withdraw the full amount of dividend paid out of the scheme. (Unless the scheme does not declare a dividend for three continuous years).
Confused!@#$% J . Let me give an example
Assume~
You invest 10,000 in a ELSS scheme with dividend reinvestment in 2006. (You can redeem these units only after a three-year lock in 2009)
Assume -Dividend of 1000 declared in 2007. The dividend units get added to your kitty by way of reinvestment (these units can only be redeemed in 2010)
Assume -Dividend of 1200 declared in 2008. The dividend units get added to your kitty again (these units can only be redeemed in 2011)…and it goes on like that…so a fraction of your investment can go unredeemable.
Still confused …Let go...
So, please stay away from dividend reinvestment option while investing in tax saving ELSS.
Also read http://ideasmoney.blogspot.com/2006/11/tax-saving-elss-advantage.html
The options being
1) Dividend Payout
2) Dividend Reinvestment
3) Growth.
Dividend Reinvestment is an option which you can avoid when investing in tax saving ELSS.
Whenever Dividend is declared and reinvested in tax saving ELSS, it is subject to a lock-in period of three years.
So, there is a high probability that a fraction of your dividend goes on a continuous circle of 3-year lock-in. In that sense, you will never be able to withdraw the full amount of dividend paid out of the scheme. (Unless the scheme does not declare a dividend for three continuous years).
Confused!@#$% J . Let me give an example
Assume~
You invest 10,000 in a ELSS scheme with dividend reinvestment in 2006. (You can redeem these units only after a three-year lock in 2009)
Assume -Dividend of 1000 declared in 2007. The dividend units get added to your kitty by way of reinvestment (these units can only be redeemed in 2010)
Assume -Dividend of 1200 declared in 2008. The dividend units get added to your kitty again (these units can only be redeemed in 2011)…and it goes on like that…so a fraction of your investment can go unredeemable.
Still confused …Let go...
So, please stay away from dividend reinvestment option while investing in tax saving ELSS.
Also read http://ideasmoney.blogspot.com/2006/11/tax-saving-elss-advantage.html
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