Rajiv Gandhi Equity Saving Scheme (RGESS) is applicable to new investors or investors who are entering the market for the first time. Although the scheme is meant for investors new to markets however it is little complicated to understand. This scheme has been under lot of discussion ever since its launch. Also, experts doesn’t look impressed with this scheme and not in favour of investment under this. Let’s see the reasons
- This scheme is also a ‘once in life time investment scheme’. This means once an investor opt for this scheme, he would not qualify as “first time investor” from the next year. This means that this scheme applies specifically to “new investors” every year. Thus the entire understanding and complicated working for this is going to work for just one year that too for the maximum tax benefit of Rs. 5150 for individual below 10 lacs and Rs.7725 for individuals earning upto 12 lacs making it less lucrative.
- There is no provision to guide the new investors to good profitable companies. As such first timers opting for buying share may fall in poor scrip resulting in losses even more tax benefit.
- The option that allows to deposit Rs 50,000 in slots of smaller denominations make things complicated for an investor lock-in will differ for each denomination of investment. The investor need to keep proper accounting of their money invested to remember these date separately.
- This scheme comes with a lock-in period of three years. Although, you are allowed to sell your shares after a year of your investment but the same amount needs to be reinvested which have claimed for deduction.
- There are few select ETFs and mutual funds that form a part of this scheme and it is mandatory for you to buy them through your demat account as such demat charges needs to borne by investors minimum for 3 years.
- The restriction of “cannot sell in first year” may add on to the dilemma of first time investors who is already risk averse and little fearful of entering the equity markets.
Experts doesn’t look happy with this avatar of the RGESS scheme specially when it is meant for first time investors. Now, two major changes for RGESS are made in Budget 2013.
- Earlier, only tax payers whose taxable income less than or equal to Rs.10,00,000 are eligible for investment in this scheme. Now this limit raised to Rs.12,00,000.
- One more important change in RGESS, you can claim the benefit instead of current one year to three years. It means that you can carry forward the current year investment tax benefit till 3 years.
Hope these changes will bring in some interest of investors to this scheme introducing them to stock markets.
