Friday, January 06, 2006

Rediff Personal Finance, ELSS and everything else

I seem to be gravitating heavily towards Rediff recently. I discovered that their articles, especially the ones from, seems to be direct, to the point and very common sensical. Good work guys keep it up. I do have a few rejoinders to their articles and my blog helps me post those ideas pretty easily.

Today I found an article on ELSS, how does it help the common man due to the 80C tax savings rule but goes even further to understand how to pick out of the whole bunch of ELSS funds that is currently available in the market and makes specific suggestions on how to go about doing it.

Do not put all your funds into a single scheme; have a mix of fund houses as well as schemes.

[Via rediff: Personal Finance]

Now I have some amount of personal experience with ELSS that I wanted to share with all of you. I have been a regular investor in ELSS schemes from 2002 and so come 2005, I had the ability to actually pull my money out since the three year lockin was complete.

Now here is the interesting part - I had actually chosen 3 years ago to use the dividend option with dividend reinvestment so over the three years the fund had reinvested all the earned dividends back into the fund. The only problem is that when I tried to sell all my holding, I was told that I cannot do it since the dividends were invested at a later point in time and those units cannot be withdrawn now and that they need to go through the three year lock in period. That does make sense when we look at it but 3 years ago when ELSS was a blip in investor's radar, the people who were selling it didn't think up of this problem and neither did I.

The flip side is that I did withdraw a significant portion of the money at the beginning of 2005 and now the remaining money has grown a lot better than the money I withdrew thanks to the spectacular performance of the ELSS funds over the one year boom in the Indian stock market.

So the moral of the story folks is that opt for the "GROWTH" option if you don't want to keep track of all the pesky dividends which will pay dividends which will pay dividends etc., for ever (hopefully)


cvrk said...

have a look at
Have you claimed the tax benefit for the amount reinvested by the fund?

Rupee Manager said...

I have written about a method better than SIP. I would like to know your comments on this.

My blog address is and the address to the specific post is

Deepak Shenoy said...

Check out my article on the growth vs. dividend option. You're right, dividend reinvestment makes no sense whatsoever today. And not just in ELSS funds, in all of them.