More detail about (RGESS) Rajiv Gandhi Equity Saving Scheme

After a long waiting for which instruments would be made available for investing in the (RGESS) Rajiv Gandhi Equity Saving Schemes, SEBI finally has come with norms and clarified it through a recent circular, which securities will be eligible scheme. It is clarified that the following securities would be considered eligible for RGESS. The following investment product would be eligible for this scheme:

(A) Close-ended mutual funds (which are traded and listed on stock exchanges)

           (B) Exchange Traded Fund (ETF) except Gold ETF

          (C) Equity shares of BSE-100 , CNX-100, Maharatna, Navaratna and  Miniratna Public Sector Undertakings (PSUs)  including their Follow-on Public Offers (FPOs) and only those IPOs of PSUs with Government stake not less than 51%, having revenue of Rs 4,000 crore in the last three years                                   

RGESS scheme provides a 50% tax rebate to new retail investors or first time investors who invest upto Rs 50,000 in the aforesaid eligible securities and whose annual income is below Rs 10 lakh. RGESS has an overall lock-in period of 3 years, but investors are allowed to sell / pledge / hypothecate their securities after the expiry of the mandatory lock-in period 1 year. The period after the end of the mandatory lock-in period, which is called as the flexible lock-in period can be used to trade in the eligible securities provided you as a new retail investor ensure that the demat account under the said scheme is compliant for a cumulative period of a minimum of 270 days during each of the two years of the flexible lock-in period. If investments done in instalments then 1 year mandatory lock-in and 2 years flexible lock-in period would be consider from last investment date.

The Government in its notification has permitted  grace period of three trading days from the end of the financial year so that the eligible securities purchased on the last trading day of the financial year also get credited in the investor’s demat account and such securities shall be deemed to have been purchased in the financial year itself. However, the deduction claimed will be withdrawn if the lock-in period requirements of the investment are not complied with or any other condition of the scheme is violated.

Now the question, who is eligible for this scheme as a new or a first time investor. It would be certified by the depositories to that an investor is a new investor or first timer. They have the power to seek information from exchanges on investor transactions through their RGESS designated demat account. After the expiry of the period of holding of the investment of RGESS,the demat account automatically converted into ordinary demat account.

By this scheme government has attemped to increase retail participation in capital market and helped them to create wealth creation through long term investment.

If you have any query regarding investment please feel free to ask.

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Balance Mutual Fund

Balance Mutual Fund: Better investment avenue for beginner

Often first time investors are very much confused for investment in mutual fund. A lot of query came across to me that which mutual fund is good for investment. In this year union budget a new scheme also introduced by government called Rajiv Gandhi Equity Saving Scheme. Now it has also included ETF fund also.  While the details of the proposed scheme are still sketchy, it has caught the attention of non-equity investors. In my opinion there is also a good investment option available for new investor. For beginner, balanced mutual funds are safe option compared with pure equity fund. It is much safer and offer decent return in bad market condition also.

Balance mutual funds that invest both in fixed income instruments and equity to strike a balance between risk and return. In our country usually, such funds invest at least 65 per cent of the corpus in equity, while the rest of corpus is in debt. The allocation to equity and debt may vary across funds depending on the prevailing market condition. For instance, if the fund manager believes that the outlook for the equity markets is bright, he may allocate more resources to it. The onus is on the fund manager, not the investor, to decide on the optimum mix of assets. Balanced fund can provide you with the perfect portfolio diversification without having to invest in multiple funds.

As it do not invest all the money in equity, they are less risky and volatile than pure equity funds. This conservative approach helps balanced funds deliver steady returns to investors across each market scenario.  If you do not have much high risk appetite but still some risk want t o take then you should consider a balanced fund.

If your investment horizon is short to medium term or 3 to 5 year it is ideal investment vehicle to help you meet your critical financial goals and also offer the stable return without worrying about market risk. Investment   through Systematic Investment Plan (SIP) in these schemes will help you to safely build a sizeable corpus over 3-5 years and meet your financial targets in very smooth way. Investing in these funds also give you hassle free portfolio rebalancing automatically.

In the point of view of taxation, the balanced funds that invest at least 65 per cent in equity are treated at par with equity investments and attract no tax liability on capital gains if held for more than a year. The debt-oriented funds come under the debt fund category, where capital gains are taxable.  Therefore it makes sense for you to invest in balanced funds for 3-5 years towards a particular goal, if you are new to the equity market and still want to the benefit of market.

If you have any query regarding investment please feel free to ask.

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com