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Saturday, November 24, 2012

Prajna Capital

Rajiv Gandhi Equity Savings Scheme (RGESS) set for launch this week

Posted: 23 Nov 2012 08:18 PM PST

The finance ministry is set to notify the Rajiv Gandhi Equity Savings Scheme (RGESS) this week.

Though Finance Minister PChidambaram had approved on September 21, the scheme announced in this year's Budget, and had said that the revenue department will notify the scheme and the Securities and Exchange Board of India (Sebi) would issue relevant circulars within two weeks, it is yet to become operational.

A senior finance ministry official said the revenue department was expected to notify the scheme any day now to attract retail investors to the equity segment.

He added that Sebi was not required to issue any circular for the operationalisation of the scheme and that after the issuance of the revenue department's notification, investors would be able to avail of the benefits of the scheme.

The official accepted that implementation of the scheme had been delayed due to the deliberations on inclusion of mutual funds (MF) in it.

He said the contours of the scheme had already been approved by the finance minister in September.

The reason behind the scheme not getting notified as yet is further consultations with the Reserve Bank of India, Sebi and the law ministry on the coverage of RGESS.

There may be some restrictions with regard to participation of MFs in the scheme. Officials said only MFs meeting specific conditions would be allowed.

Under the scheme, first-time retail investors with an annual income of ~10 lakh will get tax benefits for investing up to ~50,000 in the capital markets.

The scheme announced in Budget 2012 had allowed tax benefits for investments in stocks. Later, when Chidambaram announced the details of the scheme, he clarified exchange traded funds (ETFs) and mutual funds would also come under its ambit.

The scheme would be open to retail investors who have opened demat accounts but have not made any transactions in equity or derivatives till the notification of the scheme. With this, all those opening fresh accounts would also be eligible to participate in RGESS.

Investments can be made in various instalments during a year and the total lock-in period would be three years, including an initial lock-in of one year in the stock/ETF/MF in which the money has been invested.

Stocks listed under BSE 100 or CNX 100 or those of PSUs which are Navratnas, Maharatnas and Miniratnas would be eligible. Investment in follow-on offers of these companies would also be eligible for tax deduction.

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )