Rajiv Gandhi Equity Scheme may fire up retail investment

At a time when retail interest has been waning, the market may have got a boost with the Rajiv Gandhi Equity Savings Scheme (RGESS).

Mutual funds that have rolled out plans under this Scheme report good investor response. LIC Nomura Mutual Fund, which launched its RGESS fund on February 9, has received around 24,000 applications. IDBI Mutual Fund, which also has a similar fund open for investment now, expects to close with about 50,000 applications, with each investor bringing in about Rs 25,000.

As investors wanting to get the tax benefit through RGESS funds need also to open a demat account, this could mean significant addition to demat account numbers too. Last year, a meagre six lakh accounts were added to the total demat accounts that now number 2 crore.

The RGESS promises a one-time tax exemption on investment of up to Rs 50,000 for first-time investors in a specified list of securities — the top 100 listed firms and public sector companies.

Investors can get tax break by opening a demat account and either buying the stocks directly through a broker or by buying into a fund that invests in these stocks. Investors seem to have taken the mutual fund route.

Brokers’ worry

Stock brokers are worried about some of the RGESS features, such as the eligibility criteria and the one-off tax benefits.

Noting that they had not seen much interest in the scheme so far, Daljeet Kohli, Head of Research at brokerage IndiaNivesh Securities, said: “The scheme has been notified only recently.

“More awareness needs to be generated both amongst the brokers and through them to clients.

“Most people are inclined to looking at tax saving schemes only in the January-March quarter and it is still uncertain whether the tax benefit will continue in future.

“The extent of benefit is also too small to attract an equity investor.”

Pointing out that retail interest in stocks had not received a lift despite the market gains this year, Nirmal Jain, Chairman, India Infoline, said: “The RGESS is one good step but by itself may not be adequate to bring back retail investors.”

Fall in volumes

Numbers from the Bombay Stock Exchange show falling retail interest in equity trading.

Retail trading volumes (buys and sells) in the cash segment of the BSE have halved from Rs 16.75 lakh crore in 2008 to Rs 7.5 lakh crore in 2012.

The proportion of retail investor holdings in the BSE 500 companies dipped slightly to 7.9 per cent (by value) in December last year from 8.1 per cent in the same period previous year.

The new tax scheme, with its promise of bringing more investors under the equity fold, might just be what the stock exchanges needed to buck up retail participation.

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