Govt equities plan may come to end

It was only for first-time retail investors; rules were ill-conceived

The Rajiv Gandhi Equities Savings Scheme (RGESS), which hasn't seen enough traction from retail investors, may be on its way out because the new government may not see any need for it. And retail investors, specially first-time ones, should be happy.

Financial planner Suresh Sadagopan says, "RGESS provides 50 per cent tax deduction on investment of up to Rs 50,000 made by first-time investors, which means you can claim a tax deduction of up to Rs 25,000. The maximum benefit, as a result, can be Rs 7,500."

But it is not just about the small benefit. Financial planner Kartik Jhaveri says it is more to do with rules. One, the scheme is only for first-time equity investors. Also, it allows investment in only select stocks, mutual funds or exchange traded funds. Then, there is a three-year lock-in. Though it allows churning or profit-booking from the second year, yet the initial investment sum has to be maintained.

The Centre had raised the income limit for eligibility from Rs 10 to Rs 12 lakh a year. Depository data show the scheme saw investments worth less than Rs 35 crore from 6,000 new RGESS-demat accounts in 2013-14. In a country where two per cent hold demat accounts, this scheme needed new investors to open a separate demat account for making tax claims.

Jhaveri says, "By restricting the income level, the government is not giving benefits to the high-income bracket, where people are more comfortable with equities."  

RGESS was designed to promote direct equity investments but it later allowed investments through mutual funds and ETFs. A bulk of investments came through mutual funds.

Also, due to weak market conditions, it was difficult to get experienced retail investors.

Ashvin Parekh, managing partner of Ashvin Parekh Advisory Services, says though the scheme was ill-conceived, its intention was good. The government should ensure a better scheme takes its place. Or, reshape the scheme.

Financial planner Steven Fernandes says ending the scheme may not be good from retail participation angle. "If investors feel that new governments will end schemes brought in by previous governments, they may be wary."