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.

Advertisements

Do not go chasing ads, listen to the your needs (Part-1)

Often we come across well drafted advertisements and commercials at the most innocuous of all places. Many of us end up falling prey to some smart ad-men’s near perfect product or advertisement placement.I came across one such advertisement as well. The Ad read ” Save Tax of Rs 42,990 on investments of Rs 1 lacs** “.  The Mutual fund advertisement further explained the benefits of investing in that fund which read as below:

Tax savings: Tax benefits up to Rs 33,990/-* on investment of Rs 1 lac u/s 80c of the Income tax Act, 1961.

Free Life Insurance Cover: 5 times your investment, subject to a minimum cover of Rs 10,000 and a maximum of Rs 5,00,000. Premium on Rs 1 lac cover for 3 yrs would be approximately Rs 9,000 which investors might save.

Capital Growth: ELSS as a medium to long term investment vehicle provides scope for capital growth.

Potential savings on Rs 1 lac investment in ELSS scheme is Rs 42,990.

**Tax saving of Rs 33,990 + Rs 9,000 Life Insurance Premium

*Assuming the investor falls into highest tax bracket and surcharge is applicable.

The advertisement is right in its claims and makes no false promises, mis-selling or overt statements.

Investors would definitely benefit from investments made in such ELSS Tax Saving schemes, however, an investor needs to understand that one of the major highlights of this scheme which is displayed in bold letters above is the charm of saving Rs 42,990.

Do all investors end up saving Rs 42,990?

Simple answer is NO.

Not all investors fall in the highest tax bracket, so savings, for investors in different tax brackets would differ. So it becomes imperative for investors not to chase smart ads and inquire about tax or savings benefits to which accrue to him.

Investors who invest in ELSS schemes are traditionally retail investors who park their money in such scheme as they offer reasonable returns with the shortest possible lock-in period.The government has made a host of individual savings ‘tax-deductible’ under one umbrella called Section 80C and a simple new rule has emerged – if you invest up to Rs. 1 lac in a tax saving instrument or even a combination of them, you effectively reduce your taxable income by up to Rs. 1 lac to save up to Rs. 33,990 in taxes (including applicable surcharge and education cess).

But, you don’t have to invest an entire lac. For example, if your taxable income is Rs. 1,70,000, you would need to invest just Rs. 20,000 in a tax saver to reduce your taxable income to Rs. 1,50,000 and drop your tax to zero!

Below is an indicative table provided for better understanding of tax brackets and applicable effective saving on ELSS schemes for individuals within respective income slabs.

Your annual taxable income (Rs) Your applicable tax before investment (Rs) Optimal amount to invest (Rs) Your ‘new’ taxable income (Rs) Your applicable tax after investment (Rs) Your savings (Rs)
1,70,000 2,000 20,000 1,50,000 0 2,000
1,90,000 4,000 40,000 1,50,000 0 4,000
2,50,000 10,000 1,00,000 1,50,000 0 10,000
3,00,000 15,000 1,00,000 2,00,000 5,000 10,000
4,00,000 35,000 1,00,000 3,00,000 15,000 20,000
5,00,000 55,000 1,00,000 4,00,000 35,000 20,000
7,00,000 1,15,000 1,00,000 6,00,000 85,000 30,000
9,00,000 1,75,000 1,00,000 8,00,000 1,45,000 30,000

ELSS SCHEMES COMPARISION-16 MAY 2008

ELSS Schemes Performance Comparision-May 2008.

Investments in Equity Linked Savings Schemes, popular mode of investment for tax planning purposes has increased over the period of years. Below is the comparision of some of the schemes. All investments in this category of mutual funds are eligible for tax rebates and have a lock in period of 3 years from the date of investment.

SBI MAGNUM TAXGAIN EQUITY LINKED SAVINGS SCHEME (ELSS)

SBI Magnum Taxgain Scheme 1993 – PART 2. (DIVIDEND)

SBI Mutual Fund Trustee Company Private Limited, Trustees to SBI Mutual Fund have approved dividend in Magnum Taxgain Scheme 1993, an open-ended equity linked savings scheme.

The quantum of dividend per unit is Rs 11 on the face value per unit of Rs 10 and the record date of dividend is February 15, 2008.

Pursuant to payment of dividend, the NAV of the scheme/option would fall to the extent of the payout and statutory levy, if applicable.

SBI Mutual Fund has announced a dividend of 110% (i.e. Rs 11 per unit on the face value of Rs 10) in its open-ended equity linked savings scheme – SBI Magnum Tax Gain Scheme. The objective of the scheme is to deliver the benefits of investment in a portfolio of equity shares, while offering tax rebate on such investments made in the scheme under section 80 C of the Income tax Act, 1961. (Check out Recent SBI MF Dividends).

The record date for the same has been fixed as February 15, 2008. All investors registered under the dividend option of the scheme as on February 15, 2008, will receive this dividend. Please note that dividend as decided shall be paid, subject to availability of distributable surplus. The NAV under the dividend plan of the scheme as on February 11, 2008 was Rs 55.13.

The last dividend declare by the scheme was 110% in March 2007. Over the last one year SBI Magnum Tax Gain Scheme has yielded 22.3% as against 23.9% given by its benchmark BSE 100, as on February 11 2008.

Related Posts Only (manually created not automatically generated)

Principal MF