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THE RAJIV Gandhi Equity Savings Scheme ( RGESS) was launched in September last year to encourage first time small equity investors to participate in domestic capital markets.
The Union Finance Minister, P. Chidambaram approved the RGESS with the aim of encouraging and promoting an equity based investing culture in India. This scheme will encourage new investors to start participating in the capital markets, by providing tax benefits.
This benefit is over and above the current tax rebate one gets under 80 C of the Income Tax Act.
The Government of India has constantly endeavored to ensure that there is a constant inflow of liquidity into the stock market and has been announcing various reforms and initiatives to incentivize retail investors, to participate in the India growth story. The government has been announcing schemes, which help in building financial capacity, so that people have the risk capital to invest in the markets.
Under the RGESS, first time investors are permitted to invest a maximum of Rs. 50,000 and need to have an annual income cap of Rs 10,00,000.
If an investor is looking at saving higher taxes, this is the time he or she should invest through the Rajiv Gandhi equity savings scheme, because there are still two months left for the current fiscal to get over.
To begin your journey as an investor under the RGESS, you must open a Demat account with a Depository Participant ( DP) and avail authorization for the account to be used with the RGESS. This is done by filling in and submitting Form A to a brokerage house or DP.
Once the account is registered with the RGESS, one can pick from the many securities Though the RGESS places restrictions on investment, investors under this scheme can enjoy a onetime tax benefit in the form of a 50 per cent deduction of the invested amount on their overall taxable income for the financial year.
So a new investor can invest 50,000 rupees in the fiscal year and get tax benefit on 50 per cent of that amount, under a new section called 80 CCG. A new retail investor is defined as any resident individual, who has not opened demat account and has not made any transactions in the cash or derivative segment, as on the date of notification of the scheme or any individual who has opened a demat account, before the schemes notification, but has not made any transactions in the equity segment or the derivative segment till the date of notification.
The tax benefits of the RGESS can be clubbed with any other tax benefit you may be already be enjoying under the Income Tax Act.
Also all dividend payments made through investments are tax free unlike most other tax saving instruments such as bank deposits and fixed deposits.
Yet investors are encouraged to proceed with a certain amount of caution as the scheme does come with some restrictions.
As stated earlier, investors under the RGESS can only enjoy the tax benefit for a year and if the deduction has been cl aimed once, more claims in the next few years will not be allowed.
Al so, investment s made under this scheme are put in a state of lockin during the first year where the investor is not allowed to sell or trade the securities.
The lock- in is lifted during the second year as long as the minimum account claimed for the tax benefit is retained.
Yet investors can use the same Demat account to trade and deal without restriction in stocks and mutual funds that do not fall under the RGESS and would not have to have their investments locked- in.
There is a plethora of investment options available under this scheme. As part of the Rajiv Gandhi scheme, an investor can invest in the following securities: stocks which are part of CNX 100 or BSE 100 indices.
That is, the top 100 stocks listed on NSE and BSE. In addition investments in stocks of public sector undertakings that are Navratnas, Mahar tna s and Miniratnas. Follow- on public offers ( FPOs) of the above mentioned companies would also be eligible under the scheme.
New fund offers of eligible ETFs & mutual funds, will also qualify as eligible securities. Also, units of exchange- traded funds ( ETFs) or mutual fund schemes with RGESS- eligible securities as underlying will be counted as eligible securities for investment A few ETFs listed with the RGESS are Kotak Sensex ET IIFL NIFTY ETF Religare Nifty Exchange Traded Fund Goldman Sachs Nifty Exchange Traded Scheme Goldman Sachs Nifty Junior Exchange Traded Scheme Birla Sun Life Nifty ETF Quantum Index Fund Kotak Nifty ETF MotilalOswalMOSt shares M50 ETF An attractive opportunity to invest through the schemeis the option to invest in Nifty Exchange Traded Funds (ETFs) or funds based on NSE's benchmark index Nifty 50, which allows investing asmall sum of savings while giving good returns, which are nearly double of fixed deposit returns.
Nifty ETF provides multiple benefits; the underlying portfolio of Nifty ETFs very closely replicates that of the S& P CNX Nifty. Hence, Nifty ETFs track the movement of S& P CNX Nifty. For investors it proves to be economical, convenient, Liquid and transparent. At the same time, it is an instrument which provides instant diversification, because it replicates the movement of Nifty, which is a very representative index and covers all the major sectors of the economy. Investing in this product allows you to take exposure to 50 stocks, by buying just one ETF unit.
By investing as low as one tenth the value of Nifty, it is possible to buy one Nifty ETF unit. It is also cost effective to invest in Nifty ETF's, as there is no entry load involved unl ike some other funds. The annual expense ratio including management fees is also very low.
There is no fund manager bias either because Nifty ETF will move in the same manner as the Nifty index. An investor can react swiftly to news, because the units can be bought or sold through a broker, anytime during the trading hours.
Exchanges like NSE and BSE have been intensively involved in creating awareness on the Rajiv Gandhi equity savings scheme. The government has infact allowed exchanges to use the government emblem through ad campaigns to promote the scheme and encourage first time investors to enter the markets. NSE plans to conduct atleast 500 seminars to begin with to help people to understand this scheme and its advantages better. The seminars will be focusing on target groups such as employees from the corporate sector and from government departments.
This is a very good opportunity for the small retail investor who has not been able to reap the benefits of a growing economy and has stayed away from the markets.
The Rajiv Gandhi Equity Savings Scheme is perfect for first- time equity investors in domestic capital markets
The government has in- fact allowed exchanges to use the government emblem through ad campaigns to promote the scheme and encourage first time investors to enter the marketsHappy Investing!!
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