The mutual fund industry may look at launching equity schemes tailored for first-time investors in the Rajiv Gandhi Equity Savings Scheme (RGESS).
The Government has granted approval for equity mutual fund schemes and exchange-traded funds to be included in the ambit of the RGESS. First-time investors have been defined as those who do not have a demat account or have a demat account but have not as yet transacted in stocks or derivatives.
The new MF schemes may help achieve the objective of higher investor participation sought by the Securities and Exchange Board of India. However, it clashes with its objective of reducing the number of schemes in the industry.
‘Simplify schemes’
SEBI has been asking mutual fund houses to merge schemes with similar mandate to simplify the process of scheme selection for investors.
However, industry experts feel that not all existing equity schemes qualify under the RGESS norms. Most equity schemes are diversified equity schemes which invest across sectors and market-caps. For new investors this may not be the safest route, they said.
“As of now, it is too early to decide whether the industry would launch new funds aimed at the RGESS. We are still awaiting SEBI guidelines on this matter. The regulator does not allow launch of schemes with similar mandates,” said R.S. Srinivas Jain, Senior Vice-President and Chief Marketing Officer of SBI Mutual Fund.
“Schemes under the RGESS are only for first-time investors. We need to ensure that their investment is in companies from the large-cap segment that are safe. The idea is to expand the market by targeting new investors,” said the marketing head of a mid-sized asset management company.
Modification, easier option
The RGESS norms state that investors should only invest in companies which are part of the BSE-100 or CNX-100 indices or public sector companies which are Navaratnas, Maharatnas and Miniratnas.
Industry officials said that modifying existing schemes was also an option. Compared to launching of a new scheme, modification of an existing one was an easier and cheaper option.
Some fund officials wonder whether it is worth the effort.
Investors up to Rs 10 lakh income bracket are eligible for RGESS and the permissible investment limit is Rs 50,000. Such investors would get a 50 per cent deduction on the amount invested from the taxable income for that year.
But, with the levels of financial literacy in the country, industry officials wonder if this would have an impact. “Would someone in that income bracket want to invest in equities even if it is for tax rebate? Educating the investor is more important. Relationship managers and IFAs need to ensure that the investors understand what they are buying,” said an official of a small-sized fund house.