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Elss Mutual Fund: Dividend Reinvestment Vs Growth Option

Updated on July 1, 2011

In ELSS mutual funds, it is possible to convert the sub-option from dividend reinvest to dividend payout and vice versa but when I contacted Reliance Mutual Funds, they said it is not possible due to 3 years of lock-in period so what’s next?

With reinvestment, your dividend is reinvested which means you get more units. It also means you pay any dividend distribution tax on the dividend whereas in growth, the number of units remain the same. As far as the equity oriented funds are concerned, as of now both the options don’t make any difference.

Switches between Growth and Dividend plans are equivalent to redemption in the source plan; and fresh purchase (entry-load waived) into the target plan. Here, you will have to shell out that 0.25% STT; and bear capital gains taxation (depending on how long you had been investing in the fund).

Then it follows that in case of all other open ended funds, you can freely (well, subject to STT and tax considerations) switch across.

It also follows that in case of an ELSS investment, you cannot switch freely from Growth to Dividend due to the lock in period of 3 years.

In case of closed-ended funds, the AMC will have stolen all your freedom - the question of switching between Growth and Dividend does not arise at all.

On the other hand, switches between sub-options within Dividend plan, i.e., Dividend Payout, Dividend Reinvestment are allowed irrespective of whether the fund you invested in is a normal open ended equity fund or ELSS. This is because you are continuing to be a holder under the Dividend plan itself. The source and target are the same: "Dividend". Then, where is the validity for the concept of "redemption in source/fresh purchase in target"?

Mine and my office colleagues’ experiences with Reliance Customer Care revealed that (over the phone 022 30301111) there can't be any useless Mutual Fund Department on the earth than Reliance Customer Care of Reliance Money. They just don't know why they are there, or what they do, or what the customer asks for, or what they need to provide to the customer. Several of my friends have logged complaints on their folios over the past many months and to get them addressed, we have to meet the Regional Head, Delhi, in person that should be talking volumes about what they are up to.

Please ensure that you have spoken to someone who is more competent than those customer care executives. Perhaps your Chartered Accountant could clarify things to you in a much better detail.


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