Rajiv Gandhi Equity Savings Scheme(RGESS): Tax Saving Scheme now with Mutual Funds

Rajiv Gandhi Equity Savings Scheme(RGESS): Tax Saving Scheme now with Mutual Funds.

The Rajiv Gandhi Equity Savings Scheme (RGESS) which is a Tax Saving Scheme comes now loaded with Mutual Funds for your investments. After considering the various views of the marketmen and general sentiment in the Mutual Fund Industry, the Finance Ministry is now proposing to add Mutual Funds as one of the products to avail the tax rebates under the amended rules for Salaried employees. Managing to do a delicate act of pleasing both the investors as well as marketmen.

Mutual Fund Market Sentiments.

This is in response to the general market sentiments of the Indian Mutual Fund Industry. The Industry was losing direction and focus. The growth had already tappered off and the clearly it was headed for years of down trending. The AAUM were falling, so were the number of new registration of Folio Numbers. The Regulator re-defined couple of rules which made many Asset management Companies reconsider their business models. The regulator set up firewalls between Industry bodies and Self Regulatory Organisations. It also questioned the logic of various fees structures which were being charged to investors. Finally, a change of guard at the Finance Ministry made few changes evident, one of them being the push for adding  ELSS scheme to the RGESS albeit in reincarnated form.

AUM OF TOP 5 CITITES

AUM OF TOP 5 CITIES

Reincarnation of Equity Linked Savings Scheme ELSS

The popular ELSS survives the government wrath to be reborn in a new avatar as RGESS. ELSS which was eligible for Tax rebates under the Section 80 C was proposed to be removed. The new Direct Tax Code which was intended to be rolled out, excluded the rebates provided for the ELSS. Thus effectively putting an end to a succesful product which was gaining popularity among the retail investors. It takes huge and consistent  efforts to educate the investors of benefits of any products. It is certainly a product which was gaining lot of momentum and acceptance since its launch more than 5 years ago.

ELSS SALES

ELSS SALES

(RGESS)Rajiv Gandhi Equity Savings Scheme

The proposed Rajiv Gandhi Equity Savings Scheme scheme would allow income tax deduction of 50 per cent to new retail investors, who invest up to Rs 50,000 directly in equities, and whose annual income is below Rs 10 lakh. To make the scheme more attractive for retail investors, the Finance Ministry is considering reduction in the lock-in period under the scheme to one year from the proposed three years. Now this will make this a truly retail market product for tax saving instrument. Though as an investor benefits of Mutual Fund investments are better realised over a period of at least 3-4 years. If this product gets launched in the market in the proposed form, it would be the only tax saving instrument with least number of years in terms of the lock-in period. However, this is something no one in currently seems to be worried about.

For first time retail investors investing directly in the equity markets, this would be an option which is definitely worth considering.

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Rajiv Gandhi Equity Savings Scheme (RESS) : Should you invest in this equity scheme?

Rajiv Gandhi Equity Savings Scheme (RESS) : Should you invest in this equity scheme?

SEBI Chairman UK Sinha certainly does not think so if you are a first time investor into stock markets. On a recent opinion provided by the SEBI to government UK SINHA former Chairman of UTI Assset Management Company indicated his reservations about first time retail investors investing in Rajiv Gandhi Equity Savings Scheme (RESS).

Introduction of RESS(Rajiv Gandhi Equity Scheme)

RAJIV GANDHI EQUITY SAVINGS SCHEME

Finance Minister in his Budget had recommended introduction of Rajiv Gandhi Equity Savings Scheme for investors. The rational was the extremely low penetration of retail investors in the Indian Equity Markets. This scheme is conceived to encourage participation by new retail investors in Indian Stocks.

Why the Government is keen on Retail Participation in Indian Equity Markets?

While average Indian buying into equity markets is increasing by each passing day. However, it still cannot compare to the interests and levels of buying/consumption made by Indians in Gold and other savings instruments. The quantum of investments in Bank Fixed deposits and Gold is multiple times more than the investments in equity markets. Banks are still considered to be safe and sound investment option compared to stocks. Government is keen on changing this investment pattern and move towards enhanced in stock markets. While any economy prefers to have a balanced portflio of spread across various assest classes. The ratio of investments by Indians is skewed towards the Deposits and Gold. Such high is the proportion of these investments that is has become the cause of worry for the government.

Buying Gold means Losing Foreign Currency

India is not a producer of Gold. So all the gold has to be imported, causing huge loss of precious foreign currency. The more gold we buy, the more needs to be imported, causing more drain on the precious little foreign currency (mostly it is US Dollar) India holds. Most of it gets exhausted in buying Gold.

How does the Government encourage you invest in equity markets?

Government is introducing RESS providing Tax Deductions to retails investors participating in the Indian Equity Markets. This deduction would be available under probably section 80C to salaried retail investors. This is an incentive being provided by the government to motivate new investors who trationally invested in bank deposits and gold by granting them tax deduction to the taxable income for that financial year.

Should you invest in this scheme?

Well, that is the million dollar questioon. Though, the purpose of investing in this scheme is to provide a stepping stone into the Indian Equity markets for new investors by the government. SEBI Chairman does not think that the new investors would be exposing themselves to the right platform to begin their journey into the financial markets. I guess the SEBI Chairman who knows markets, marketmen and governments would know, what he is saying.

Is Reliance Mutual Fund giving up the AAUM race for profitability?

Reliance Mutual Fund  is changing its strategy of chasing the AAUM, to now focus on increasing its bottomline. The AAUM of Reliance Asset Management Company (Largest Mutual Fund Manager in India) is slowly tapering off. Does this mean it has given up its self-styled race for size to now focus on making its balance sheet stronger?

Reliance the Undisputed Leader in AAUM: Reliance held the No 1 spot in assets under its management for past many years. Its was originally Reliance’s idea to aggressively market various schemes and garner biggest chunk of new assets under its control. It launched innovative products, schemes and offered large incentives to market its funds. It redefined the Indian Assets Management business by taking a sizeable lead ahead of its rivals. With sustained efforts and aggressive posturing it reached indomitable position in the Indian Mutual Fund Industry in a very short time.

Knowledge, Products, Marketing and Timing: Reliance Group has a firm understanding of the Indian Markets. It has always kept pace with the changing demographics of its consumers. In one of the fastest growing market of the world, it is of utmost importance to connect with your investors and stay ahead of the curve. SIP for just 100, ATM Card for Mutual Fund Investors, First SIP in Gold Fund are few recent examples of innovative concepts by Reliance Capital.

Reliance Mutual Fund

Good management, excellent and timely PR, stable fund managers are a few qualities associated with Reliance Mutual Fund. It managed volatility and downtrends in markets with gusto by being in the public eye when it mattered the most. Able Fund Managers were available in public domain(effectively and efficiently doing a  Public Relations job) to calm investor’s nerves when their portfolios were bleeding. Such hand holding is often the need of the hour in volatile markets.

Rivals made it easy for Reliance: While Reliance was in race with itself, others like HDFC Mutual Fund had different ideas about the whole concept of increasing the AAUM. It regularly doubted Reliance claims of ever-increasing investors and assets. The measurement of company’s size is a difficult task in a complex Indian financial market. Absence of clear and strict guidelines to calculate various parameters of AAUM made it easier to tweak numbers. Rivals were left with playing the catch-up game to the market leader, Reliance. Many asset management companies, baring few like Quantum AMC and Benchmark AMC failed to offer a different product than the one which Reliance already had in its portfolio.

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Common Benefit and Features of Investing in Mutual Fund.

Mutual Fund is an excellent financial product which allows pooling of resources to reduce overall cost of investing and sharing of risks.

E-Mail/Electronic Communication

Feature of MUtual Fund

Account statements and scheme related documents can be send to your mailbox

Benefit of Fund

Email delivery of your account statements ensure that you do not waste you time in filing your paper statement(physical statements). It also ensures that your account statement do not go to wrong address or unintended/unauthorised person. This benefit of email communication is important from safety and security perspective. It is a eco-friendly option for environment conscious investors. By opting for email statement investors help in saving trees which are destroyed to make paper based physical statements.

Grievance Officer/Customer Complaint/Service Manager

Feature of MUtual Fund

Asset management Companies appoint experience staff to handle customer related complaints.

Benefit of Fund

Unsatisfactory service, delay in credit of dividends, delay in receiving statements, wrong address, incorrect NAV, Incorrect schemes and many other small and major customer service related issues are managed by these officers. They co-ordinate with Local branches and the Main Office of the AMC to resolve issues and ensure good customer service.

Request for Account statement/Annual Reports

Feature of MUtual Fund

Account statement can be requested by customer whenever required.

Benefit of Fund

Customer is provided with an Annual Report of the scheme in which he has invested. One can call on any of the popular Toll free Phone Numbers of Mutual fund to place a request for latest NAV details or updated A/C statement.

Website/SMS Code/NAV on Mobile Phone

Feature of MUtual Fund

All Major Mutual fund companies have active websites which provide scheme related information.

Benefit of Fund

Daily NAV, Dividend details, key persons, registrar company and various other details are regularly published on websites. Various locations where Mutual fund has service desk, branches are also listed on these sites.

Publishing of NAV Rate

Feature of MUtual Fund

Daily NAV Rates are updated by Mutual fund Companies on websites and newspapers.

Benefit of Fund

Everyday Net Asset Values of schemes are updated on the websites of fund companies. These are also uploaded on AMFI Website(Association of Mutual Funds in India). NAV of major fund houses are published in many regional and national dailies like MINT, ECONOMIC TIMES, BUSINESS LINE etc.

Buy Mutual Funds using your VISA ATM Card.

Feature of MUtual Fund

Use your VISA ATM Card to buy Mutual Funds Units at your ATM Center.

Benefit of Fund

Mutual Fund units can now be purchased by using your ATM Card at any VISA Approved ATM Center. This makes the process of investing in Mutual Funds extremely easy and convenient for many people who do not have time to manage their finances. Investments in Mutual Funds can be made on days when the increments/bonus/pending cheque payments are received. This will assist in parking funds for long-term to build an investment nest.

Back to Basics Series I (Part2) : This article is in response to SEBI's Public Appeal for following the right approach to Mutual Fund Industry.
SEBI Investor Education

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What are features and benefits of Mutual Funds?

Unlike most other financial products like provident fund, insurance and post office schemes, Top Mutual Funds not only provides convenience while investing money, but it also offers a variety of features that benefit investors. A few of most common features and benefits of  top mutual funds are highlighted.

Micro SIP/Chota SIP
Feature of Mutual Fund
Invest as low as Rs 100/- in Mutual Fund Companies

Top Mutual Fund Companies offer its investors an option to invest extremely small amounts such as Rs 100/-, Rs 500/-, Rs 1000/- each month depending on individual’s capacity into many of its mutual fund schemes.

Benefits of Mutual Fund: Benefits of Mutual Fund are for people who want to invest small amounts. Daily Wage Workers, Rickshaw Taxi Drivers, Labourers who wish to invest into Mutual Funds.

Flexibility of Dates
Features of Mutual Fund

Ease of investing on convenient dates

Investor can invest in top Mutual Fund Scheme on their choice of dates. Many large Mutual Fund companies offer multiple dates for investing into its top performing mutual fund schemes. E.g Few dates would be 1st, 5th, 10th, 15th, 25th of each month. This makes regular investments on salary dates possible.

Benefit of Mutual Funds:  Benefits Salaried people who receive money at the end of the month and wish to invest in Mutual Funds.

Timely Payments through ECS
Feature of Mutual Funds

Hassle free, Regular Payments to allow you to concentrate on other important things in life

Investors in Mutual Funds need not worry about making timely payments each month through opting for ECS Payment Method. This ensures regular, hassle free, timely and correct monthly payments.

Benefit of Mutual Fund:  Feature is useful for people who are busy or travel a lot, as he does not have time to keep track of his monthly payments.

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Investing Through POA (Power of Attorney)
Feature of MutualFund

Investing without physical presence

Investments in Mutual Funds can be done through Assignment of a Power of Attorney for effective financial planning. Army Personnel, Officers posted on-duty at far off places, owners/directors of limited companies, Non-Resident Indians, Resident Indian posted onsite/outside India can invest through the convenience of POA.

Benefit of Mutual Fund: Your Financial Planning for family’s benefit cannot be discontinued in your absence. Defense and Police Officers can appoint wife or family members to be POA and allow them to invest on your behalf.

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Invest in China with just Rs 10,000 with Hang Seng BeEs ETF

After the mad rush for Gold ETF Asset Management companies were actively scouting go the next big idea to launch to seek cover for their dwindling Assets Under Management(AUM). Accordingly, Benchmark Mutual Fund will be launching an ETF based on the Hang Seng Index. Hang Seng BeEs as it is called would be listed on the NSE on Monday , 15th February. The Purpose of this EFT is to enable investors track Hang Seng Live and reveal hang seng index chart on real-time basis.

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Benchmark AMC and its Niche:

Benchmark has carved a niche for itself in the Indian Mutual Fund Industry by successfully launching first ETF in Asia(not only India) Nifty BeEs. It is also credited with launching the Gold ETF first time in India. Shariah based ETF products were first introduced to the Indian Mutual Fund Investors by Benchmark Asset Management Company.

Trade on Hang Seng Stock Exchange:

Hang Seng BeEs would be the first ETF to introduce Indian Stock Market Investors to a closed market like China. India and China are two of the fastest growing economies in the world. Indian investors would largely benefit by the diversification offered with the launch of hang seng index based ETF. Hang Seng Stock Exchange is one of the largest exchanges in the world. Hang Seng Index Charts, Hang Seng Futures, Hang Seng Historical Data can also be now be determined and tracked on a real-time basis.

Hang Seng Timings:

Hang Seng BEnchmark Exchange traded Scheme(BeEs) will trade during the Hong Stock Exchange Timings. The Heng Seng Stock Exchange closes two and half hours prior to the NSE Closing timings. The corresponding time would be between 7.30 am to 1.30 pm Indian Standard Time. The timings are better suited to Indian Stock Market traders and investors alike, compared to US Markets and European market timings. The NAV for the Scheme would also include the currency fluctuation.

Taxation Rules for Trading in Foreign ETF:

The ETF are treated as Debt funds for tax treatment and would therefore attract tax rules which are currently applicable to the non-equity funds in India. The Hang Seng Index currently comprises of 42 Stocks and is the benchmark for the China ETF in India. Rs 10,000 is all you need for your ticket to China: The units are available for a minimum amount of just Rs 10,000. To cater to large masses and enable wider market participation the entry amount is kept at Rs 10000 only. All Major Global Corporations have invested billions of dollars in the Chinese Economy. So why Indian Investor should not join the race and participate to diversify their existing portfolios?

Charges for trading on China ETF:

There are no charges levied by the AMC in form of NIL entry load and NIL exit load for buying and selling on the NSE. A minor bid/ask spread, brokerage for trading and needs to be borne by the investor. Hitherto, only High Net worth Individuals was active in using these innovative financial products. In future retail investors should add such products to their overall portfolio diversification strategy.

SBI Magnum Taxgain Scheme 1993 dividend for 2009 has been announced by SBI MF

SBI Magnum Taxgain Scheme 1993 dividend for 2009 has been announced by SBI MF. With over 17 lakh investors and a stable track-record of over 15-years SBI Magnum TaxGain ELSS Scheme 1993 has proved to be one of the most consistent performer amongst the tax saving schemes category in the Indian Mutual Fund Industry. See previous dividends declared

Dividend for 2009

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Magnum TaxGain ELSS Scheme : 28%

Magnum Tax Gain ELSS has generated excellent returns over past 15 years and continues to provide retail investors a profitable avenue with constant stream of fat dividends. The SBI TaxGain Equity Linked Savings Scheme is also one of the largest equity scheme in India with corpus of over 3,262 Crores (Download Magnum TaxGain April 2009 Fact Sheet).  SBI Mutual Fund is India’s largest bank sponsored mutual fund and has an enviable track record in judicious investments and consistent wealth creation.

After an long delay(and nil dividend in the previous financial year) it had become almost imperative for the fund manager/investment managers at SBI MF to declared a dividend no matter how small the dividend amount be.  The scheme’s rivals like HDFC TaxSaver and HDFC Long Term Advantage Fund had already declared decent and timely dividend income in the past. Irony of dividends in falling markets is that, it lowers already low NAV.

Dividend Income Bigger than Annual Bonus/Increment:

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In fact, for many Salaried Investors of this scheme, due to economic downturn the Dividend Income received from SBI Magnum Taxgain has ironically outstripped their annual bonus/incentive and annual increment incomes in their current profession.

The record date for dividend is 29-May-2009. Post declaration of the dividend the NAV of the scheme will fall to the extent of the dividend payout. Check NAV of the scheme.

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