Business Standard

Govt outlines Rajiv Gandhi Scheme allows MFs, ETFs

The scheme is exclusively for first-time retail investors with annual income of below Rs 10 lakh

Related News

Finance minister on Friday approved and outlined the details of the (RGESS), which was proposed in this year’s Budget for providing income tax benefit for first-time capital market investors.

The scheme is exclusively for first-time retail investors with annual income of below Rs 10 lakh. The maximum investment permissible under the scheme is Rs 50,000 and the investor would get a 50 per cent deduction of the amount invested from the taxable income for that year.

RGESS, conceptualised by the capital market division of the finance ministry, has been predominately designed for encouraging direct investment into equities. However, the government has also included investments routed through exchange traded funds (ETFs) and (MFs) following requests from various stakeholders.

“The scheme not only encourages the flow of savings and improves the depth of the domestic capital markets, but also aims to promote an equity culture in India. It is also expected to widen the retail investor base in the Indian securities markets,” said a press note from the finance ministry.

“The penetration of investment in equities is very low in India, this initiative will help overcome this,” Sanjiv Shah, co-chief executive officer, Goldman Sachs Asset Management, said

Investments made in the top 100 listed stocks (BSE 100 and CNX 100) and public sector undertakings (Navr-atnas, Maharatnas and Miniratnas) would be eligible under the scheme. and MFs with these stocks as underlying will only be eligible.

In order to help achieve the disinvestment target, the government has said investments in follow-on public offerings of the above companies and initial public offerings of PSUs with turnover of more than Rs 4,000 crore would also be eligible under this scheme.

The scheme will be only open to new retail investors, who will be identified on the basis of their PAN numbers. First-time investors who have opened their demat accounts but have not yet transacted will also be eligible.

Similar to other tax-saving schemes, investments through RGESS also will have a three-year lock-in but investors will be allowed to trade in the securities after the first year.

Investors would, however, be required to maintain their level of investment during these two years at the amount for which they have claimed income tax benefit or at the value of the portfolio before initiating a sale transaction, whichever is less, for at least 270 days in a year.

The government has said that the tax benefit will be withdrawn if an investor fails to meet the conditions stipulated for the scheme.

Market experts said the scheme will be beneficial for the stock market but at the same time added that it was quite complicated from a first-time investor’s point of view.

“The intentions look good but at first glance the scheme looks very complex,” said Gautam Mehra, executive director (banking regulations & asset management), PwC. “A first time stock market investor may not have the level of sophistication needed to understand the scheme.”

“There are still too many uncertainties,” said Jimmy Patel, chief executive officer, Quantum AMC. “There is no clarity whether existing mutual fund investors will be eligible. Also, whether both open-ended or close-ended MF schemes will be allowed. It will be very complicated for the government to monitor this scheme.”

The government has said the scheme has already been incorporated as a new Section - 80CCG - of the Income Tax Act, 1961, as amended by the Finance Act, 2012. The department of revenue is likely to notify the scheme soon and market regulator Sebi will be issuing relevant circulars to operationalise the scheme in the next two weeks.

Read more on:   

Read More

FIIs infuse over Rs 19,000 cr in Sep

Overseas investors pumped in more than Rs 19,000 crore ($3.5 billion) in the Indian stock market in September, the highest monthly inflow in seven ...

Quick Links

Market News

Sensex up nearly 100 points; Cipla, ICICI Bank top gainers

The 30-share Sensex was up 88 points at 29,366 and the 50-share Nifty was at 8,850 trading lower by 14 points

Mentha oil futures gain 0.54% on spot demand

Oil for delivery in January edged up by 0.48%

Chana up 0.4% on spot demand

Analysts said pick up in demand in the spot market, tight stocks position on restricted supplies from producing belts led to the rise in prices

Appeal over self regulator for MF distributors to be heard in Feb

Case adjourned so that full bench can hear the matter

Nickel up 2.4% on spot demand

Metal for delivery in February rose by 2.27%


Back to Top