Ahead of the Union budget presentation, various market entities plan to try and persuade the finance ministry to make changes to the newly-launched Rajiv Gandhi Equity Savings Scheme (RGESS).
RGESS was meant to boost invividuals’ participation in the stock markets. Announced in last year's budget, it was notified by the Income Tax department only on November 23. Market participants are seeking greater tax benefits for the scheme, by increasing the investment limit and removing the one-time benefit clause.
The association of stock brokers and some mutual fund houses are expected to make representations to the ministry soon, said sources.
Market players believe RGESS has great potential to draw investors into the equity market from across India but needs tweaking. Sources say the market regulator, the Securities and Exchange Board of India (Sebi), is also positive about the prospects and could send its own suggestions.
“We believe, in the current form the scheme will get a cold response. We will be soon writing to the finance ministry and Sebi, asking them to increase the investment limit. We would ask them to see if it is feasible to allow individuals to invest in the scheme every year, instead of just one,” said a member of the Bombay Stock Exchange Brokers Forum.
RGESS provides a tax benefit for first-time capital market investors. It has a maximum investment permissible of Rs 50,000 and this can be availed of only once. Meant only for individuals with annual income of less than Rs 10 lakh, it provides 50 per cent tax deduction on the total amount invested.
However, a senior finance ministry official said allowing higher investment into the scheme could fuel unnecessary speculation. “We don’t want a situation where a large amount of money from this scheme chases a few stocks and a bubble-like situation is created,” said a senior bureaucrat in the capital markets division. “With regard to tax benefits, instruments like ELSS (equity-linked savings scheme) are already available, so we are not sure if RGESS benefits need to be extended,” he added.
Only the securities of the top 100 listed companies and public sector undertakings are eligible for investments under the RGESS. Also allowed are exchange traded funds and mutual funds with the same underlying products.
Due to paucity of time, coupled with the scheme’s complexity, broking houses and mutual funds have not marketed it aggressively. Only three fund houses — SBI, IDBI and DSP BlackRock — have so far filed draft offer documents with Sebi to launch this scheme. Meanwhile, stock exchanges, to give a push, have developed separate websites for RGESS.