This move will help AMCs to expand retail penetration
The finance ministry today allowed both ETFs and mutual funds to be a part of Rajiv Gandhi Equity Scheme (RGESS). First time retail investors can invest up to Rs 50,000 in the equity market through RGESS and avail 50 percent tax benefit on investment. Only investors whose salary is less than Rs 10 lakh are eligible for this scheme.
Mutual funds and ETFs that invest in shares under BSE 100 or CNX or those of PSUs which are Navratnas, Maharatnas and Miniratnas would be eligible for investment under RGESS. Such mutual funds and ETFs will have to be listed and traded in the stock exchanges and settled through a depository mechanism
“This is a great move for the Indian equity markets and also for the mutual fund industry. We welcome the measures proposed by Finance Minister to promote the Industry. This will encourage growth and enhance retail participation in mutual fund industry. This step will encourage the flow of savings in financial instruments and improve the depth of domestic capital market,” said Sundeep Sikka, CEO, Reliance Capital Asset Management.
According to the Ministry of Finance press release, first time investors are those who have opened the de-mat account but have not made any transaction in equity or derivatives till the notification of the scheme and all those account holders other than the first account holder who wish to open a fresh account.
“This is a positive move by the ministry which will support us in increasing the penetration in retail,” said Sales Head of a top fund house.
To encourage small investors, the ministry has allowed a provision of investing in instalments in a year in which the tax claims are made. Investors will have to lock-in their investments for minimum three years, including an initial lock-in of one year in the stock/ETF/MF in which the money has been invested. The scheme will be operational in the next two weeks.
“Like all other financial products (post office saving,
life insurance policies) that have reached out to substantial retail investors
through tax benefit, this tax benefit scheme for direct investment in equity is
expected to substantially the retail participation in securities market. Entry of more retail investors are expected
to further deepen the security as they bring –in long term stable funds, which
can counteract the volatility created by liquidity providers of the market,”
says the release.