Money Jun 21, 2013
The capital market regulator is pulling out all stops to makethe Rajiv Gandhi Equity Savings Scheme (RGESS) work.
Sebi in a notification on Friday allowed mutual funds to accept investor's funds in new plans of the RGESS for 30 days, double the period now allowed.
The extended period is available only for new fund offers (NFOs) ofRGESS. Initial offer for other schemes will remain 15 days.
It has also increased the period for issuance statements and refund money in case of cancellations under RGESS to 15 days from five earlier. Recently, Sebi had decreased lock-in period period for investments under RGESS to one year from the initial three years.
In its bid to attract investors to the capital markets, this scheme also come with tax benefits. Any new investor (who has not participated in equity market before) can invest up to Rs 50,000 (for tax benefit), but such an investor should have a gross total annual income is less than or equal to Rs 10 lakh.
To invest in RGESS, you will need to open a demat account. You will also have to fill in declaration Form A to the Depositary Participant (DP). You can make any amount of investments, but the amount eligible for an income tax deduction is a maximum amount of Rs 50,000. As per the Indian Income tax law, a deduction is up to 50 percent of the amount invested in such equity shares to the extent such deduction does not exceed Rs 25,000. So, if you are in the lowest tax bracket of 10 percent your tax benefit will be Rs 2,500. And, if you are in the 20 percent tax bracket, your tax benefit will be Rs 5,000.
What we think: For the first-time investors, this product is too complex to make sense of. The tax benefit is also not for very attractive amount. We don't recommend RGESS.
With PTI input
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