A dozen fund houses ready to launch RGESS plans

Written by Ashley Coutinho | Ashley Coutinho | Mumbai | Updated: Feb 6 2013, 12:33pm hrs
With IDBI MF getting the capital market regulators nod for its series 1 RGESS scheme on Monday, about a dozen fund houses will be ready to launch their Rajiv Gandhi Equity Savings Scheme (RGESS) plans by February 9, the day finance minister P Chidambaram officially launches the product.

Besides IDBI MF, LIC Nomura MF and DSP BlackRock have got Sebi nod for launching their closed-ended RGESS-compliant schemes. Birla Sun Life RGESS, UTI RGESS, and SBI RGESS Tax Saving Fund are still waiting for Sebi approval.

According to industry observers, the number of fund houses that could have launched schemes under the RGESS ambit would have been much higher had it not been for the delay in the final notification for the scheme. Sebi had issued clarifications on RGESS notification as late as December 6 and the regulator typically takes about three-weeks-to-a-month to clear new schemes.

Most fund houses, however, have bought their existing ETFs schemes under the RGESS ambit. Fund houses like ICICI Prudential MF, Goldman Sachs, Motilal Oswal, Reliance MF, Kotak MF, Religare MF, SBI MF and Quantum MF will offer RGESS plans through the ETF route.

According to experts, ETFs as a product are easy to understand and are cost-efficient as the AMC does not charge distributor brokerage, which is why several AMCs have taken the ETF route for offering RGESS plans.

I think fund houses have been quick to bring in schemes compliant under RGESS. Considering that the clarifications on the notifications were issued less than two months ago, it is laudable that a good number of fund houses have been able to get the necessary approvals from the AMC and trustee, prepare offer documents, tweak existing products and filing offer documents for new schemes, said Himanshu Pandya, VP & head, products, ICICI Prudential Asset Management.

Under the RGESS route, a new retail investor who has not transacted in equity share through his depository account as on November 23, 2012, and having a gross annual income not exceeding R10 lakh, would be eligible for tax savings under Section 80 CCG, which is over and above the R1 lakh limit available under Section 80 C of Income tax Act.

Market participants believe it is too early to gauge the kind of response the scheme will get, but a lot will depend on how individual fund houses work with distributors to sell the scheme.

That RGESS has a separate tax benefit and is earmarked as a separate tax instrument, which may work in its favour. However, experts believe the scheme is poorly structured in its current avatar, as investors stand to get a one-tme benefit of just R2,500 on an investment of R50,000 if they fall within the 10% tax slab, or R5,000 if they come under the 20% slab.

According to the Sebi circular detailing the scheme, units of exchange-traded funds (ETFs) or mutual fund (MF) schemes with eligible securities as underlying can be brought under the ambit of RGESS.

Eligible securities can fall in the list of equity declared as BSE-100 or CNX-100 by the BSE and the NSE or equity shares of public sector enterprises categorised as Maharatna, Navratna or Miniratna by the government.

The RGESS was initially proposed in the Union Budget 2012-13 to encourage flow of savings in financial instruments and improve the depths of domestic capital market.

On track

* IDBI MF, LIC Nomura MF and DSP BlackRock have got the Sebi nod for launching their closed-ended RGESS compliant schemes

* Birla Sun Life RGESS, UTI RGESS, and SBI RGESS Tax Saving Fund are still waiting for their Sebi approval

* Most fund houses have bought existing ETFs schemes under RGESS ambit

* Experts say the scheme is poorly structured in its current avatar