Eligible Schemes for Rajiv Gandhi Equity Saving Schemes

Some eligible schemes for RGESS

In these days many fund houses are launching their RGESS mutual funds in the point of view tax benefit under section 80CCG. The few schemes has been given below.

S.No.	Fund Name	I Investment Objective	NFO Date
1	SBI RGESS Fund	Actively managed fund that only invests in shares of CNX 100	09 Feb 2013 – 09 Mar 2013
2	IDBI RGESS Fund	Actively managed fund that invests in shares of CNX 100 and shares of public sector enterprises which are categorized as Maharatna, Navratna or Miniratna.	09 Feb 2013 – 09 Mar 2013
3	UTI RGESS Fund	The principal investment objective of the scheme is to invest in stocks of companies comprising S&P CNX Nifty and endeavor to achieve return equivalent to Nifty by “passive” investment. The scheme will be managed by replicating the index in the same weightage as in S&P CNX Nifty – Index with the intention of minimising the performance difference between the scheme and the S&P CNX Nifty – Index in capital terms	09 Feb 2013 – 08 Mar 2013
4	HDFC RGESS Fund	A Close-ended Equity Scheme investing in Eligible Securities as per Rajiv Gandhi Equity Savings Scheme, 2012 as amended from time to time.	18 Feb 2013 – 15 Mar 2013
5	Birla Sun Life RGESS Fund	The investment objective of the Scheme(s) is to generate capital appreciation,from a portfolio that is substantially constituted of equity securities specified as eligible securities for Rajiv Gandhi Equity Savings Scheme, 2012 (RGESS).	25 Feb 2013 – 20 Mar 2013

Feel free to ask any queries  investment related query

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Positive signal for economy in budget 2013-14

Some positive signals to control current account deficit in Union Budget 2013-14

The Union Budget 2013-14 has failed to meet high expectation from the common man and Dalal Street. There is no any announcement for revitalise the investment cycles or attract savings in capital market. The confusion over retrospective changes in Section 90A of Income Tax Act relating to relief to foreign investment is not good. As foreign investment is very important factor to fill in the gap of current account deficit.

There are some positive signals by government also. To control current account deficit and to check the increasing gold demand government has increased the income limit from 10 lakh to 12 lakh for eligibility for Rajiv Gandhi Equity Savings Schemes (RGESS).

The government has reduced the planned expenditure for rural development, agriculture and social sector as against the expected increase in planned expenditure.

For first-time home buyers during 2013-14 availing loan up to Rs 25 lakh and having the cost of property of less than Rs 40 lakh will be eligible for additional deduction of interest of up to Rs 1 lakh. (At present Rs 1.5 lakh tax exemption on interest paid on housing loan under section 24A)

The government is also planning to launch inflation indexed national savings certificates subject to RBI consultation.

In any immovable property sell transaction except agriculture have to deduct TDS of 1% on the value of property where the value of deals exceeds Rs. 50 lakh.

The surcharge has been increased from 5% to 10% for those companies whose revenue above Rs 10 crore. Additional 10 % surcharge has been introduced for those individuals who are above 1 crore income slab.

Dividend Distribution Tax (DDT) increased from 5% to 10%. Custom duty on set top boxes, specific excise duty on cigarettes and excise duty on SUV increased. Import duty on gold increased from 4% to 6%.

The above mentioned step has given positive signal from government side to control current account deficit.

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

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

Rajiv Gandhi Equity Savings Scheme

After announcement in the budget The government has finally approved much awaited “Rajiv Gandhi Equity Savings Scheme” (RGESS). Two things which come out clearly from the features of the scheme are: 1) it is a scheme intended to provide tax benefit to first time investors investing directly in equity, mutual fund and exchange traded funds (ETF).  2) It is an attempt to attract investors into stock market and broaden investor base in stocks.
 

The scheme offers tax benefits to investors whose income is up to Rs 10 lakh. This means that the scheme is open for investors paying income tax in two tax brackets—10% and 20%. For an investment up to Rs 50,000, 50% of investment will qualify for tax benefit. For an investor in 10% bracket, the total tax benefit offered by the scheme will be Rs2,500 ( 50% of Rs50,000 is Rs25,000 and 10% tax benefit on this amount is Rs2,500), while for an investor in 20% tax bracket this benefit will be Rs5,000 which can be availed only once. The tax benefits as such do not seem very attractive but in our country where investments are done on the basis of tax benefit, this amount is good enough to catch attention of an investor.
 

Tax benefits on stock investments are not new to the investors in India. Equity Linked Savings Scheme (ELSS)—a tax benefit product—has been in existence for quite some time now but has failed to attract investors. When Compared to ELSS in terms of tax benefits, RGESS looks like almost same. The major difference is that it is available to first time investors alone. The most important question that RGESS raises is, “Can tax incentives alone attract new investors to the stock market and broaden investor base in the country?”
 

As per existing tax provisions in India, investment in stocks is extremely attractive in terms of taxation of returns. There are no long-term capital gains taxes in the country for an investor if he purchases stocks which are traded on recognized stock exchanges and Securities Transaction Tax (STT) is paid on these stocks. Contrary to this, bank deposits and fixed deposits in particular are subject to taxation as per the tax slab in which income of an individual falls. Another attraction of investment in stocks is that it allows an investor to set off capital loss against capital gains subject to some conditions. But in bank deposits there are no such provisions.
 

In spite of there being very attractive tax structure for investment in stocks, investors prefer bank deposits to stock investment. RBI (Reserve Bank of India) data shows that banks deposits have shown consistence increase in deposits year on year basis. Even insurance as a product has shown similar trend. However, total change in stock investments during last ten years is less than a single year change in the bank deposits. In fact during last five years, due to bad performance of stock market, total change in the investment in stocks has been marginal.

Looking at the data and trends in investments in financial assets in India, can a marginal tax incentive actually attract investors in stock market?  If we believe the same , will they remain invested beyond the lock-in period? The answer seems to be an no at this stage. The failure of ELSS as a product is an example of it.
 

Investors have been avoiding equity market because of volatility and speculation in the market. The common investor today feels that volatility in India equity market is too much and have not much confidence with respect to investment in equity.
 

There should be prepared an environment for growth of equity market. This should start from investor education and strict regulatory controls in capital market. Investors need to be given confidence that equity market creates wealth in long term. Corporate governance practices need to be implemented strictly so that investors can believe on companies and their operations.

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com