The Finance Ministry has finally allowed investments through mutual funds to be eligible for tax benefits under the Rajiv Gandhi Equity Saving Scheme. Formal notification of this scheme, approved by the Finance Minister, is expected in two weeks.

This scheme aims to promote equity culture and curb investment in gold. It was announced in the Budget for 2012-13. Earlier it was said that investments will be permitted in approved shares. But after appeals from SEBI and mutual fund industry, the addition has been made.

Announcing the scheme on Friday, the Finance Minister P. Chidambaram said, “It will act as an alternative financial instrument and encourage more people to invest in this instrument rather than gold, which is a dead instrument.”

‘equity culture’

The scheme will not only encourages the flow of savings and improves the depth of domestic capital markets, but also aims to promote an ‘equity culture’ in India. This is also expected to widen the retail investor base in the Indian securities markets, he hoped.

The Rajiv Gandhi Equity Scheme would be open to retail investors who would be investing in equity markets for the first time. The scheme would have a total lock-in period of three years, including an initial blanket one-year lock-in when trading will not be possible.

“The maximum investment permissible under the scheme is up to Rs 50,000 and the investor would get a 50 per cent deduction of the amount invested from the taxable income for that year,” Chidambaram said.

Experts have hailed the decision to expand the investment avenues by including mutual funds and exchange traded fund.

The Co-Chief Executive Officer, Goldman Sachs Asset Management (India) Pvt Ltd, Sanjiv Shah, said, “This is an excellent initiative by the Government to encourage small investors to participate in the capital markets.

“The penetration of investment in equities is very low in India; this initiative will help overcome this.”

(This article was published on September 21, 2012)
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