The Rajiv Gandhi Equity Savings Scheme (RGESS) which is a Tax Saving Scheme comes now loaded with Mutual Funds for your investments. After considering the various views of the marketment and general sentiment in the Mutual Fund Industry, the Finance Ministry is now proposing to add Mutual Funds as one of the products to avail the tax rebates under the amended rules for Salaried employees. Managing to do a delicate act of pleasing both the investors as well as marketmen.
Mutual Fund Market Sentiments.
This is in response to the general market sentiments of the Indian Mutual Fund Industry. The Industry was losing direction and focus. The growth had already tappered off and the clearly it was headed for years of down trending. The AAUM were falling, so were the number of new registration of Folio Numbers. The Regulator re-defined couple of rules which made many Asset management Companies reconsider their business models. The regulator set up firewalls between Industry bodies and Self Regulatory Organisations. It also questioned the logic of various fees structures which were charged to investors. Finally, a change of guard at the Finance Ministry made few changes evident, one of them being the push for adding ELSS scheme to the RGESS abeit in reincarnated form.
Reincarnation of Equity Linked Savings Scheme ELSS
The popular ELSS survives the government wrath to be reborn in a new avatar as RGESS. ELSS which was eligible for Tax rebates under the Section 80 C was proposed to be removed. The new Direct Tax Code which was intended to be rolled out excluded the rebates provided for the ELSS. Thus effectively putting an end to a succesful product which was gaining popularity among the retail investors. It takes huge and consistent efforts to educate the investors of benefits of any products. It is certainly a product which was gaining lot of momentum and acceptance since its launch more than 5 years ago.
(RGESS)Rajiv Gandhi Equity Savings Scheme
The proposed Rajiv Gandhi Equity Savings Scheme scheme would allow income tax deduction of 50 per cent to new retail investors, who invest up to Rs 50,000 directly in equities, and whose annual income is below Rs 10 lakh. To make the scheme more attractive for retail investors, the Finance Ministry is considering reduction in the lock-in period under the scheme to one year from the proposed three years. Now this will make this a truly retail market product for tax saving instrument. Though as an investor benefits of Mutual Fund investments are better realised over a period of at least 3-4 years. If this product gets launched in the market in the proposed form, it would be the only tax saving instrument with least number of years in terms of the lock-in period. However, this is something no one in currently seems to be worried about.
For first time retail investors investing directly in the equity markets, this would be an option which is definitely worth considering.