Mutual funds give cold shoulder to RGESS

Last Updated: Tue, Jan 08, 2013 19:32 hrs

Over a month after the final guidelines were issued by the Securities and Exchange Board of India (Sebi), not many mutual funds seem keen to launch the Rajiv Gandhi Equity Savings Scheme (RGESS). Only three fund houses have filed draft offer documents, records with Sebi show. Two are sponsored by state-owned banks — State Bank of India and IDBI. DSP BlackRock is the only private fund house to have shown interest.

Before launching new schemes, filing draft papers with Sebi is mandatory. The regulator takes about three weeks to a month to clear these. Though the tax-saving season technically extends till end-March, most organisations require their staff to plan their tax savings and give declarations by the 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. “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 5,150 per year, as tax payers in the 30 per cent bracket are not eligible.”

  • Only three fund houses have filed draft offer documents. Even of these three, two were sponsored by state-owned banks — SBI and IDBI
  • DSP BlackRock is the only private fund house that has shown interest in the scheme
  • Even these three funds are most likely to miss the bus this tax season (January-March), as Sebi will normally take about three weeks to a month to clear these schemes

Initially, when RGESS was envisaged as a direct equity product, funds seemed very keen on it. Even Sebi had recommended that mutual funds be included in the scheme’s scope, after which the government allowed fund houses to participate.

Now, they appear to have second thoughts. “It’s 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 But there are instances where we have seen such schemes withdrawn after a year or two.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 (the scheme) if there is certainty that it will continue,” said N Seturam, chief executive officer (CEO) of Daiwa Mutual Fund. Also, the delay in issuing 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 per cent of the sum invested.

However, 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 could be out, self-employed people might still look at picking up RGESS units, as and when these are launched. Experts say some funds are restructuring existing schemes to fit the RGESS requirements. Under the scheme, investment in the top 100 listed stocks and top public sector undertakings (PSUs) are eligible for tax benefits. The government’s proposed PSU exchange traded fund is also unlikely to be ready in time for the tax season of the salaried class.

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