Rajiv Gandhi equity savings scheme gets thumbs down from investors

Shishir Sinha New Delhi | Updated on March 12, 2018

Attracted just 50,000 who parked a mere ₹120 crore in the tax-saving plan

The over-hyped Rajiv Gandhi Equity Savings Scheme (RGESS) has failed to take off, if data from two depository agencies — National Securities Depository (NSDL) and Central Depository Services (CDSL) — is anything to go by.

According to the information available, the scheme has managed to mop up just a little over ₹120 crore from first-time investors by the end of 2014.

According to experts, the scheme has its own complexities, and besides that, more attractive products with tax benefits are available in the market for investment.

If risks of direct investment in the stock market have been a deterrent, even gains have not been very attractive for people in all tax brackets.

NSDL data reveal that there were 16,811 RGESS demat accounts as on December 31, 2014. Of these, 16,296 were new, while 515 existing accounts were designated for the scheme. However, there were a little over 13,000 accounts with investment. CDSL listed 30,747 demat accounts as RGESS, of which 28,017 were new, while the remaining were old accounts. But, the number of accounts with investment was just 8,035.

Launched with high aims

On the NSDL, total value of initial investments (valued at actual cost of acquisition) was a meagre ₹64.15 crore — ₹52.27 crore in mutual fund schemes, ₹11.09 crore in equity and ₹77.78 lakh in exchange-traded funds (ETF). CDSL data put the total value of initial investment at ₹ 37.8 crore — ₹26.39 crore through mutual fund schemes, ₹10.61 crore through equity and ₹80.1 lakh through ETF.

The scheme was first announced in the Union Budget 2012-13 and liberalised in 2013-14. It aims to encourage savings by small investors in the domestic capital market, coupled with tax benefits for the first-time investors.

To avail the benefits of the scheme, an individual must have a demat account (only one) with a mandatory Permanent Account Number. Anyone, whose annual income is up to ₹12 lakh can invest a maximum of ₹50,000 under the scheme, while 50 per cent of that investment will be deducted for tax computation. Tax benefits are available for a period of three years.

The scheme prescribes investment in companies in BSE 100 or NSE 100 index, Maharatna/ Navratna/ Miniratna stocks, RGESS-compliant mutual funds and ETFs. Initial public offers of public sector undertakings can also be used to take benefit of this scheme.

ELSS more attractive

Dhirendra Kumar, CEO of Value Research, said the scheme is mainly designed to promote opening of demat accounts and not encouraging investment. “Equity-linked savings scheme (ELSS) is a more attractive and simpler alternative to the RGESS,” he said, adding that in order to make RGESS effective, it should be made open-ended rather than lock in the investment for three years.

Published on January 12, 2015

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