Fund houses pitch for more relaxation in Rajiv Gandhi scheme

Sneha Padiyath Updated - February 25, 2013 at 10:29 PM.

Seek investment limit to be doubled to Rs 1 lakh

Expanding the investor base under the RGESS-fold is what the mutual fund industry is looking forward to in the forthcoming Budget.

RGESS, or Rajiv Gandhi Equity Savings Scheme, is a tax-saving scheme announced in the last year’s Budget for first-time investors within the income bracket of Rs 10 lakh.

Modifying the definition of ‘first-time investors’ to include both new and inactive investors would help to increase participation of retail investors in equity markets, said some fund house officials.

Current guidelines define ‘first-time investors” as either those who have never traded in the equity markets before or those who hold a depository account but have not transacted yet. Fund house officials feel that this narrows the scope of potential investors.

Dormant investors

“There might be many more investors who may own equity shares in depository accounts through inheritance or ESOPs or have transacted once or more quite a long time ago and have been dormant since. These people also need to be brought into the fold of the RGESS,” said Srinivas Rao Ravuri, Senior Fund Manager of HDFC Asset Management.

Industry players would also like to see an increase in the investment limit in RGESS-oriented funds to a maximum of Rs 1 lakh from Rs 50,000.

“In such a case, the scheme should also be extended to the next financial year, so that those who have invested up to Rs 50,000 this year can invest up to Rs 1 lakh next year,” said Nilesh Sathe, Chief Executive Officer of LIC Nomura Asset Management Company.

Tapping the untapped

There is also a consensus building on removing the limits on income-level which have been currently fixed at below Rs 10 lakh. Market participants said that considering the low equity participation in the country, there is a lot of untapped investment potential among those in the higher-income bracket as well. This would also help increase the investor base, they added.

Investors in RGESS funds would, under section 80CG of the IT Act, get a 50 per cent deduction of the amount invested (a maximum of Rs 50,000) from the taxable income.

The aim of the RGESS funds is to encourage the flow of savings and to improve the depth of the domestic equity markets.

Speaking at the launch of the RGESS mutual fund schemes last month, Finance Minister P. Chidambaram and SEBI Chief U.K. Sinha had said that there was a need to revisit the guidelines of the RGESS to make it more appealing to middle income investors.

The Finance Minister had also said the necessary changes would be announced in the forthcoming Budget.

> sneha.p@thehindu.co.in

Published on February 25, 2013 16:59