Fund houses rush to launch RGESS in bid to lure middle-class investors
Under the scheme, new investors can avail of tax benefits who invest up to Rs 50,000 in the stock market and whose gross total annual income is less than or equal to Rs 10 lakh.
Looking to increase penetration among retail investors, fund houses are rushing to launch Rajiv Gandhi Equity Savings Scheme, with six players including HDFC Mutual Fund filing draft papers for it with market regulator Sebi in less than two months.
RGESS, meant for first timers in the capital market, aims to attract more retail investors by offering tax benefits on their investments. In January alone, besides country's largest fund house HDFC MF, four more players have filed draft documents for starting the scheme with the Securities and Exchange Board of India.
Other players are UTI AMC, LIC Nomura, IDBI Mutual Fund and SBI MF. In December, DSP BlackRock had filed draft paper for launching the scheme, according to Sebi data. Filing draft papers is mandatory before launching new mutual fund schemes and the regulator usually takes about three-four weeks to clear them.
"RGESS is likely to help improve penetration of mutual funds among the retail investors in the country. This scheme will not only create awareness, but it also has the potential to channelise retail money to capital markets in an informed manner," ICICI Prudential AMC MD and CEO Nimesh Shah said.
Market participants believe that the government initiative is a positive step and help in attracting retail investors towards equity markets.
RGESS was announced in the 2012-13 Union Budget, and is another government initiative to strengthen the country's capital market with increased participation of retail investors. "The scheme is only for the first time investors in the capital market and there is a huge potential in the country," Quantum Asset Management Company CEO Jimmy Patel said.
In order to encourage flow of savings in the financial instruments and improve the depth of the domestic capital market, Sebi last month announced the framework for RGESS.
Under the scheme, new investors can avail of tax benefits who invest up to Rs 50,000 in the stock market and whose gross total annual income is less than or equal to Rs 10 lakh. There would be a lock-in period of one year on investments made under the scheme.
At the end of December, the mutual fund industry's overall assets under management (AUM) stood at Rs 7.6 lakh crore while the equity portion contributed Rs 1.91 lakh crore.
There has probably been no greater poorly designed investment scheme than the UPA's Rajiv Gandhi Equity Savings Scheme. It had no reason to exist, and given the poor response, it probably will die a quiet, unsung death now
Aiming to attract first-time stock market investors, Finance Minister P Chidambaram will launch the much-awaited Rajiv Gandhi Equity Savings Scheme (RGESS) in Mumbai on 9 February.
Fund managers, however, say it will be costly and difficult to tap into these millions of small, and often sceptical, investors, many of whom live in small towns and rural areas and don't trust big city stock markets.