Is the dividend re-investment in a Tax Saver fund also subject to a lock-in period of 3 years?

Is the dividend re-investment in a Tax Saver fund also subject to a lock-in period of 3 years? Also post completion of the 3 year lock-in period, can the non-dividend part be redeemed?

 Any investment made into an Equity Linked Saving Scheme (ELSS) is subject to a lock-in period of 3 years, same holds even for dividends from ELSS which is re-invested if the investor has chosen the dividend re-investment option. 

The implication for the investor is that some portion of his investment will always be locked-in because dividend declared is re-invested and will attract a three year lock-in.

However, any portion of the investment, whether originally made or as a result of dividend re-invested, which has completed the lock-in period of three years, can be redeemed by the investor.

 Alternatively, investors may choose the growth option while investing, or if opted for dividend reinvestment and want to make changes, he can do so by making changes in dividend option, i.e from dividend reinvestment to dividend payout.

Also refer:

Tax Treatment for Equity Linked Savings Scheme (ELSS)

Tax Treatment of Public Provident Fund (PPF)  

 Explain Lock in Period if investment is in ELSS Funds Through SIP (Systematic Investment Plan)

Explain Lock in Period if investment is in ELSS Funds Through SIP (Systematic Investment Plan)

When you invest in tax planning funds that is ELSS Funds (Equity Linked Savings Schemes) through SIP; each and every SIP investment is treated as a new investment, which means each instalment has to complete the compulsory three-year lock-in.
When you invest through SIP in an ELSS, the lock-in period for each installment will start from the day the investment is made.
But that should not pose to be a hindrance. If you are investing for the long-term, then a three-year lock-in on each installment should not be a problem to you. I don't  think it would be wise to invest substantial amounts at one go when the markets are all time high, i feel investing in sip in elss is best bet for the long term investor.


Example

Let's say you started your SIP from 1st april 2009, and paid the last installment on 10th April 2010. What would be the lock in?

The 3 year lock in for the units bought on 1 April 2009 would end on 1 April 2012, the 3 year lock in for the units bought on 10 May 2009 would end on 10 May 2012, and so on.
so it will follow like this:
 Sip Date                         Redemption date
1 April 2009                    1 April 2012
10th May 2009                  10 May 2012
10th June 2009                   10th June 2012
10th July 2009                    10th July 2012
10th August 2009               10th August 2012
10th Sept 2009                    10th Sept 2012    

10th October 2009              10th October 2012
10th Nov 2009                     10th Nov 2012
10th December 2009           10th December 2012
10th Jan 2010                       10th Jan 2013
 10th Feb 2010                      10th Feb 2013

10th March 2010                   10th March 2013
10th April 2010                      10th April 2013

 Which Option/plan to choose In ELSS Funds:

Second most important thing is choosing plan under ELSS funds, as best is to go with growth or dividend payout option as the reason is if you chosen dividend reinvestment option then your reinvested amount is also considered as new investment and will have lock in  for three years, and if in that scheme, you get dividend year after year so this process keep going long and long and you can't redeem all units as every year the dividend get lock in for another 3 years.

How to change the option if you have chosen Dividend Reinvestment in ELSS Funds:
so if you selected dividend reinvestment option but now you want to change, so you can switch the option from reinvestment to payout by filling simple request for switch in that scheme,.

About ELSS Funds:
Equity Linked Saving Scheme is an open-ended equity growth scheme that is offered by mutual funds in line with existing ELSS guidelines. The investments under this type of scheme are subject to a lock-in period of 3 years and, as per the Finance Act 2005, are allowed the benefit of income deduction up to Rs. 1,00,000. ELSS offers the benefits of tax saving and capital gains. Instead of spreading your investments across different instruments such as PPF, ELSS, NSC and infrastructure bonds, you can now invest the entire limit of Rs. 100,000 available under Sec 80C in ELSS.

Advantages of ELSS

• Lock-in for three years prevents unnecessary withdrawals and allows your money to grow over a period of time
• Investments in equity over a long-term delivers better returns than that of other savings instruments and similar to other equity schemes
• Tax savings and high returns
• Flexibility to Invest in small amounts through a Systematic Investment Plan