Financial exuberance and innovation has not only made the world of investments complex, but also left investors in dynamic environment. While galore of newsflashes released on policy initiatives and other issues, which stalwarts of the finance industry try to be abreast with; investors are often left confused in the maze of information.
The story of Rajiv Gandhi Equity Savings Scheme (RGESS) isn't any different. Right since the time the Government proposed the introduction of a tax rebate under RGESS, there has been host of information disseminated by the press. With lack of clarity right since the proposal stage, information has moved back and forth, often confusing investors on how the tax benefits would be passed on to them.
It is noteworthy that earlier RGESS was proposed to allow income tax deduction of 50% to new retail investors who invest up to Rs 50,000 'directly in equities' and whose annual income is below Rs 10 lakh. Moreover, the lock-in period of the scheme was set at 3 years. Later, the Association of Mutual Funds in India (AMFI) had tried to convince the Finance Ministry to include mutual funds in RGESS. Likewise the capital market regulator - Securities and Exchange Board of India (SEBI), had also pitched for the same in attempt to minimise the risks associated with direct equity investments by investors; but unfortunately, the Finance Ministry rejected the proposal.
Now considering the proposal of AMFI once again, the Government may include mutual fund investments in RGESS, against the backdrop of Prime Minister, Dr Manmohan Singh outlining resolution of problems in the mutual fund industry as one of the priority areas. Moreover, in an aim to make the scheme more attractive for retail investors, the ministry is also considering to reduce the lock-in period to 1 year (from 3 years, as proposed earlier).
PersonalFN is of the view that, if indeed mutual funds are included in RGESS it would aid the mutual fund industry which is paining,