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Highlights of Rajiv Gandhi Equity Savings Scheme (RGESS) 2012.

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Rajiv Gandhi Equity Savings Scheme (RGESS) 2012 - Things to Know

Rajiv Gandhi Equity Saving Scheme (RGESS) is a new equity tax advantage saving scheme introduced for the first time equity investors in India. This scheme was announced in the 2012-13 budget by the Finance Minister of India.

This scheme has been floated specially for individuals who have never invested in stocks but going by the experts the irony is that it is quite a complicated and difficult scheme to understand keeping in mind the new investors.

Highlights of Rajiv Gandhi Equity Savings Scheme (RGESS) 2012
RGESS Scheme is applicable to new investors or investors who are entering the market for the first time. This means if you your PAN number does not hold any equity transactions in your name or if you do not have a Demat account in your name or if a demat account in your name exists but you have never invested in equity then you can invest in this scheme.
  • If your taxable limit is less than 10 lacs every year then you may qualify for the scheme with Rs 50K being the maximum limit of investment every year.
  • You may save tax upto 50 percent of the total amount that you have invested.
  • You are given a choice of investing Rs 50K in a lump sum or you may invest it in break ups of Rs 10K 5 times during the year or you may break it to less than Rs 10K as well. These both are permissible.
  • This scheme brings along a lock in period of 3 Years. This may serve to be difficult. There is, however, an option of opting for the “profit” after one year of investment but you will not be in a position to sell your shares during the first year.
  • This scheme provides you with 50 percent deduction for investments up to Rs 50K under a new Section 80CCG.
  • RGESS gives you an option of investing in stocks that form a part of –
                  i)     Large Listed PSU’s
                 ii)     BSE 100
                iii)     CNX 100
                iv)     And any ETF, Mutual fund which are listed and traded in stock exchange and whose portfolio includes stocks which are eligible under RGESS
                v)       IPOs of PSUs whose annual turnover is not less than Rs. 4000 Crore for each of the immediate past three years.

Should You Opt For RGESS? -
This scheme has been under lot of discussion ever since its launch. The question often asked by investors is should one opt for the scheme but sadly most of the experts are not in favour of investment under this. Lets have a look –
  • Very first reason for this scheme to get a negative response is that it is mandatory for you to have a PAN number as well as a demat account which, in a way, is right but it also specifies that you need to be a first time investor. Can some one please suggest how will they tap this if you have invested previously through a broker?
  • This scheme comes out with limited stock options. There is no provision to guide the new investors to good profitable companies. How can you expect first timers to opt for companies without due guidance and if they get caught in wrong hands then RGESS is sure to put them down from their list.
  • This scheme comes with a lock-in period of three years. You are allowed to sell your shares after a year of your investment but you will have to reinvest the initial amount that you have claimed for deduction and this has to be done by buying from the same list of select shares, making it more complicated.
  • There are few select ETFs and mutual funds that form a part of this scheme and if you plan to buy these ETFs and mutual funds it becomes mandatory for you to buy them through your demat account.
  • The option that allows you to deposit Rs 50K in slots of smaller denominations make things more complicated for you as remembering lock-in dates for the separate dates of investments becomes more tedious.
The restriction of “cannot sell in first year” may add on to the dilemma of first time investors who already suffer from the fear of entering the equity market when they are doing it for the first time.

This scheme is also a ‘once in life time investment scheme’. This means once you opt for this scheme, you would not qualify as “first time investor” from the next year. This means that this scheme applies specifically to “new investors” every year.

Experts have turned down the RGESS scheme even for first time investors. RGESS scheme does not really seem to qualify for the new investors with all the complexities that it brings in.

  • Brigit A Stanley:
    I would like you to give more info on rgess
    05-Mar-2013 01:12 AM