Rajiv Gandhi Equity Savings Scheme (RGESS) has not been able to attract investors despite the relaxations introduced in the scheme to make it more investor friendly.
The three schemes - Birla Sun Life Focused Equity Fund - Series 1, ICICI Prudential Equity Saving Scheme Series 1 and HDFC Rajiv Gandhi Equity Saving Scheme – Series 2 which closed for subscription recently have collectively mobilized Rs. 155 crore from their NFOs. Last year the industry had mobilized Rs. 230 crore from RGESS.
While HDFC Rajiv Gandhi Equity Saving Scheme has collected Rs 60 crore during its NFO, Birla Sun Life Focused Equity Fund – Series 1 and ICICI Prudential Equity Saving Scheme Series 1 have mobilized Rs. 50 crore and Rs. 45 crore respectively.
Last year, HDFC Rajiv Gandhi Equity Saving Scheme Series 1 had collected close to Rs 110 crore from its NFO. The 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.
Some players have backed out from launching RGESS this year. DSP BlackRock, UTI and IDBI who had launched their first series last year have not launched RGESS this year due to administrative hassles and operational constraints.
Experts attributed this tepid response to the complex structure of RGESS. Only first time individual investors in securities market with an annual income of up to Rs. 12 lakh can get tax benefit under Section 80 CCG of the Income Tax Act.
Nikhil Kothari of Etica Wealth Management feels that investment in RGESS involves a lot of operational hurdles. “In RGESS, for investors claiming tax benefit under Sec 80 CCG, demat account is mandatory and opening a demat accounts is itself a hassle. Last year, we helped 100 clients to open their demat accounts.” He is of the view that the investors who had invested last year may not invest in RGESS this year due to no additional benefits.
“It is very difficult for the fund house and the distributors to identify first time investors having an annual income of up to 12 lakh per annum. Secondly, no investors would like to invest in an instrument which gives them only 50% tax deduction if they have an option of claiming 100% tax deduction through ELSS,” said Dhirendra Kumar, Chief Executive Officer, Value Research.
Hemant Rustagi of Wiseinvest Advisors points out that tax benefits given under RGESS are not attractive compared to other tax saving instruments. “Only 50% of investment or up to Rs. 25000 could be claimed for tax deduction which doesn’t look attractive. Also, first time investors find it difficult to understand the product.”
“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,” said a senior official from a mid-sized fund house.
RGESS is designed to provide 50% deduction from income for investments of up to Rs 50,000 which is over and above deduction of Rs 1 lakh under Section 80CCG of Income Tax Act.
The NFO of two more funds - Birla Sun Life Focused Equity Fund - Series 2 and LIC Nomura RGESS Series 2 are currently open for subscription and close on March 14.
