After feedback from SEBI and representations from the industry, the tax-savings scheme may be amended.
In the recent budget, the government had announced the Rajiv Gandhi Equity Savings Scheme (RGESS) to boost retail participation in the markets. Retail investors would have benefited from I-T deduction of 50% for investment up to Rs 50,000 in the equity markets.
This deduction was to be applicable for new retail investors with annual income below Rs 10 lakh. Mint reports today that the government is planning to amend the scheme to allow investors to invest through MFs. This has been done because fresh investors may not full understand the risks involved in direct market participation.
A portion of the investment could be through direct participation, but the government may only allow an investor to buy shares of listed PSU firms.
When the initial announcement was made, SEBI had voiced its apprehensions on allowing the scheme to operate in its current avatar. Further, AMFI has been lobbying for MF participation in RGESS. HN Sinor, AMFI CEO, told Cafemutual, “As soon as we heard the budget proposals, we had approached SEBI and the ministry to route MF investments through the Rajiv Gandhi Equity Savings Scheme. We will be happy if the government finally allows investments through MFs.”
Apart from allowing MF investments (the industry wants the ministry to allow ETFs too), the government may also look at reducing the current lock-in period of 3 years to make the scheme more attractive. That is because savings through ELSS currently allow for deduction up to Rs 1 lakh (with a 3-year lock-in), while the proposed RGESS only allows for deduction up to Rs 50,000.
According to the report, a formal Finance Ministry notification may be issued on 7th May.
