MFs give a cold shoulder to RGESS

Not a single scheme launched in time for tax saving season

Over a month after the final guidelines were issued by the Securities and Exchange Board of India (Sebi) not many mutual funds seem to be keen to launch the Rajiv Gandhi Equity Savings scheme. Only three fund houses have filed draft offer documents, records with Sebi showed. Even of these three, two were state-owned bank sponsored—SBI and IDBI. DSP Blackrock is the only private fund house that has shown interest by filing for the scheme.

Filing draft papers Sebi is mandatory before launching new schemes and the regulator takes about three weeks to a month to clear these schemes. Though the tax saving season technically extends till end of March, most organizations require their staff to plan their tax savings and give declarations by end of January.  Thus, even these few schemes are most likely to miss the bus this tax year, say distributors.

 

“By the time the schemes are out, the salaried class would have already completed their tax formalities,” said J Krishnan of Integrated Enterprises adding, “So, practically we are at the end of the season. Further, the product is not simple. And for all its complexities, the maximum saving is capped at Rs 5150 per year as the tax payers in 30% bracket are not eligible.”

Funds seemed to be very keen on the band wagon initially when the scheme was envisaged as a direct equity product. Even Sebi recommended that the mutual funds are included in the scheme’s scope after which the government allowed funds to participate.

But now they seem to have second thoughts. “It is not very clear whether this scheme is going to be an ongoing tax saving route. It was announced in the budget. But there are instances where we have seen such schemes withdrawn after a year or two. More funds will launch if there is certainty that the scheme will continue,” said N Seturam, Chief Executive Officer of Daiwa mutual fund. Also, the delay in issuing of notifications is an excuse for funds. The government notification came on November 23 and the Sebi circular followed on December 6.

Fund managers agree the RGESS is an ideal tool to take the mutual fund product to centres beyond the top 15 cities. RGESS allows first time investors with gross total income of below Rs 10 lakh a tax rebate on 50% of the sum invested.

The conditionalities are putting off investors and advisors. Hemant Rustagi, CEO, Wiseinvest Advisors said, “The scheme can work for investors who believe in equity. If you are not convinced about equity, no amount of tax benefit can make you invest.”

Rustagi feels while the salaried class may be out, Self-employed people may still look at picking up the RGESS units, as and when they are launched. Experts said some funds are restructuring their existing schemes to be compliant with the RGESS requirements. Under the scheme, investment in the top 100 listed stocks and top PSUs (public sector units) are eligible for tax benefits. The government’s proposed PSU Exchange Traded Fund (ETF) is also unlikely to be ready in time for the tax season of the salaried class.