The finance ministry has asked capital market watchdog Sebi and banking regulator RBI to give comments within a week on the proposed Rajiv Gandhi Equity Saving Scheme (RGESS), aimed at encouraging small and first-time investors into the equity market. Sebi is expected to consider the scheme at its next board meeting by the end of this month.
The ministry remains firm on its view that mutual funds should not be included in the scheme, a persistent demand by market players backed by even the capital market regulator.
?We have explained the reasons for not allowing mutual funds to participate in the scheme as the equity linked saving scheme already exists for mutual fund. RGESS is purely meant for financial inclusion,? said a senior official.
RGESS was introduced in Budget 2012-13 to attract retail investments in the stock market. The scheme has been designed to give first-time retail investors with annual income of R10 lakh or less an income tax deduction of 50% on investments up to R50,000.
The ministry is planning to reduce the lock-in period for investments under the scheme to one year from three years. The official added that after the one year lock-in period, investors can trade among different securities, but the scheme will have a three year maturity period.
RGESS is expected to come with the safeguards that will permit small investors to purchase shares only in the top 100 stocks traded on BSE and NSE. Sebi has been pitching to route the tax-saving equity scheme through mutual funds to minimise the risks associated with direct equity investments by investors.
Market experts said allowing mutual fund investors to come into the market through RGESS would have been desirable. At present, equity-linked savings scheme (ELSS) or tax-saving MF schemes are on their way out, if the proposed direct taxes code (DTC) is implemented from April 2013. Inclusion of MFs in RGESS would have kept these under the ambit of tax saving schemes.
Rejecting the industry?s plea to include mutual funds in the scheme comes at a time when Prime Minister Manmohan Singh has asked the ministry to work on measures to revive the mutual fund industry which has seen assets under management (AUM), the money entrusted by investors to fund managers, remaining stagnant for two years. After the recent meeting with mutual fund executives, the regulator is expected to announce measures for the sector.