Only four fund houses are looking to launch their RGESS fund this year.
Mutual fund industry may see only a handful of Rajiv Gandhi Equity Savings Scheme (RGESS) funds getting launched this tax season. Only four fund houses including two new entrants are keen on launching their RGESS funds this year. Industry experts attributed this disinterest in RGESS to administrative hassles and operational constraints in RGESS.
Birla Sun Life MF has launched its RGESS compliant fund under a new name called Birla Sun Life Focused Equity Fund - Series 1. Last year, Birla Sun Life MF had launched Birla Sun Life RGESS Fund Series 1. HDFC MF is planning to float the series II of HDFC RGESS Fund by January end; the first series collected more than Rs 100 crore.
ICICI Prudential MF and Sundaram MF are launching RGESS for the first time this year. ICICI Prudential MF will launch its first RGESS fund called ICICI Prudential Equity Saving Scheme Series 1 on January 20. Sundaram MF has a plan to float the fund by February last week.
Other players like DSP BlackRock, UTI, LIC Nomura and IDBI who had launched their first series last year are not inclined this year to come out with a series 2.
Last year, six fund houses had collected close to Rs 230 crore. Value Research data shows that AUM of HDFC RGESS Fund Series I is Rs 113 crore as on December, 31 2013. Similarly, AUM of Birla Sun Life RGESS Fund Series 1, DSPBR RGESS Series 1, UTI RGESS Retail, IDBI RGESS Series 1 and LIC Nomura RGESS Series 1 are Rs 42 crore, 44 crore, Rs 25 crore, Rs 18 crore and 17 crore respectively as on December, 31 2013.
Nilesh Sathe, CEO, LIC Nomura MF said, “There is a lot of hassle involved in RGESS. Firstly, it is difficult to find out who is the first time investor through a demat account. Last year, many investors didn’t get tax benefit under RGESS due to ambiguity in RGESS norms. Also, the one-time taxation benefits are available only to those individuals who earn less than Rs 12 lakh per annum. The investors who had invested last year may not invest in RGESS this year due to no additional benefits.” In case investors failed to comply with RGESS norms, the deduction availed under the scheme will be added back to taxable income for the financial year.
Debasish Mallick, CEO, IDBI MF told Cafemutual that they have not launched RGESS fund this year due to operational constraints. In RGESS, for investors claiming tax benefit under Sec 80 CCG, demat account is mandatory. Many investments in mutual funds through distributors are done through physical route; hence, distributors are uncomfortable with the procedure and hassle of opening a demat account for their clients.
A senior fund official said on the condition of anonymity that the finance ministry has not promoted RGESS in a big way to boost it as a tax saving instrument; instead they have put some senseless hurdles to invest in RGESS.
“Opening a demat account is a hassle for first time investors. And, to recognize first time investors is a major challenge for fund houses,” says Vinod Jain of Jain Investments. He points out that collecting the minimum stipulated amount of Rs 10 crore from a chunk of small investors where they can put a maximum of Rs 50,000 for claiming tax is very difficult for fund houses.
