The Rajiv Gandhi Equity Saving Scheme, announced in this year's Budget, is eyeing 1.5 crore new investors for the equity market. But, investment under the scheme may be restricted to top 100 or 200 shares on the Bombay and National Stock Exchanges.
A senior Finance Ministry official told Business Line , “Among all the taxpayers, there are nearly 1.5 crore people, with income up to 10 lakh, who do not have a demat account. There would be enough attraction for these people to invest in the equity market.”
The new scheme will allow for income tax deduction of 50 per cent to new retail investors who invest up to Rs 50,000 directly in equities. It will have a lock-in period of three years, and will allow one-time deduction. The scheme is not for existing investors.
The official said that to provide a safer environment, investments under the new scheme may initially be allowed only in the top 100 or 200 companies (on the basis of market capitalisation) listed on various stock exchanges. “Since investors have burnt their fingers mainly in mid-cap, small-cap and penny stocks, it is best to encourage them to invest first in bigger shares. Once they taste profit and feel that their money is safe, they can go for more investments,” he added.
The Economic Affairs Secretary, Mr R. Gopalan, in an interview with Business Line , confirmed that restricting the investment in bigger shares was being considered. A decision in this regard and final details about the scheme were expected by the middle of this year, he added.
Meanwhile, the Finance Ministry is working on a provision for early exit. “For an investor who wants to book profits and exit before completion of the three-year lock-in period, we are thinking of making a provision with a strict condition,” he said. He clarified that under such a provision, the investor may be asked to return the benefit (deduction of Rs 25,000 for calculation of income tax) to the Government.
The new scheme is being designed to encourage flow of savings in financial instruments and improve depth of the domestic capital market.