Question regarding lock-in period for tax saving scheme dividends

POSTED BY Ram Mohan ON March 22, 2012 10:39 am COMMENTS (9)

Are dividends from Tax Gain Schemes that are reinvested also subject to lock in?

I had invested in SBI Magnum Tax Gain Scheme (D) and my last SIP was in 25-Apr-2008. Now for whatever reason I wanted to redeem this and to my shock, the redemption request was not fully processed saying that there are some units that are locked in.

Looking at my account statement I see that dividends have been given in 2009 for this scheme. Now my question is are these dividends subject to lock in? That seems very silly to me because I’m not getting any tax benefit from the dividends that are reinvested

Can experts help here? Or should I call the AMC and tell them that the units should all be redeemable?

Thanks in advance

9 replies on this article “Question regarding lock-in period for tax saving scheme dividends”

  1. Karthik,

    There is not much of clarity on DTC. You never know how it might shape up.Yes going by logic all ELSS funds should be converted to open ended fund. after lockin period of 3 years for last revinvested dividend it should act like normal equity fund.

    I would suggest get it converted to growth. I am not great fan of dividend as it just vanishes in air.

    1. Karthik says:


      It’s useless to convert to growth fund in the same ELSS, as it will be treated as fresh investment and had to endure another 3 yrs lockin. So it’s better to have STP the available units to another Equity fund’s Growth fund or convert to Growth fund of the same ELSS only after the abolition of lockin.

  2. Karthik says:

    If the DTC comes to effect, will the lock-in be removed from ELSS funds?

    Logically speaking, the amount invested before DTC will be having the lock in. But what about the amounts invested after DTC? I know we don’t have information. But what will be the likely scenario? If the lock in is removed, then it’s similar to anyother reinvestment rite?

    1. Dear Karthik, DTC is still a talk & not a walk. Let it happen & there ‘ll be more clarity on the subject & the questions raised by you, once the DTC is passed as an ACT by the parliament. So please wait for DTC.



  3. bharat shah says:

    further as i experienced, never go for dividend option even for pay out, as under some rules even dividend below some a/m,rs.200/- if i do not forget, they will not pay but reinvest without your consent. and you will never get rid of the fund.

  4. Abhishek says:

    Please move to the dividend Payout option, Then you can redeem all units from this fund. Else at any point of time, there will be units which have not completed 3 years.


    1. says:

      Hi Abhishek,

      I’m doubting whether even a switch to a different option in same fund is allowed during the lock-in period



      1. Dear Ram, it ‘s possible to change the method of receiving dividend by way of reinvesting changed over to pay out. In this case as there is no case of redemption, the dividend pay out request ‘ll be processed.



  5. says:

    Ok quick update; just spoke to the AMC, the dividend reinvested is as good as money you’re putting into the fund. So it is eligible for tax saving. However, I would recommend not to go for dividend reinvestment option for tax savings as you won’t know what the dividend dates are and how much you can save in tax there. Better to go for growth option

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