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

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.