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ETFs slated to come under RGESS

Santosh Tiwari / New Delhi 31 Aug 12 | 12:46 AM

Exchange-traded funds (ETFs) are likely to be included in the list of avenues allowed for investments under the Rajiv Gandhi Equity Savings Scheme (RGESS) announced in the Budget.

A senior finance ministry official told Business Standard the final contours of the scheme were slated to be approved in a meeting convened by Economic Affairs Secretary Arvind Mayaram tomorrow. The scheme is likely to be notified next week. “Initial public offerings, follow-on public offerings and ETFs of stocks eligible under the scheme have been listed as avenues to be allowed," he added.

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Investments in the top 100 stocks listed on the BSE and the National Stock Exchange (NSE), as well as in Navratna and Maharatna public sector undertakings, would be covered in the RGESS, according to the scheme finalised by the finance ministry. The official said this meant ETFs of stocks allowed for investment under RGESS, listed and traded on the exchanges, would be part of the scheme, which would include such funds floated by mutual funds.

  • Plan to notify the scheme next week
  • IPOs, FPOs and ETFs in list of investments to be covered under the scheme
  • Top 100 BSE, NSE stocks and specified PSU scrips to be part of it
  • Sebi suggestion to include mutual fund investments a difficult proposition
  • 50% tax deduction on Rs 50,000-investment by first timers with annual income below Rs 10 lakh under the scheme

He, however, said though the Securities and Exchange Board of India had suggested allowing investments in mutual funds directly under the scheme, so far, no decision had been taken on this. For that, an amendment in the Finance Act would be required, he added.

He said investment in mutual funds did not align with the basic idea of promoting equity culture. On August 17, Finance Minister P Chidambaram had indicated the ministry would soon take a decision on Sebi’s recommendation to provide tax benefits to equity mutual fund investors under RGESS.

A final decision in this regard is now expected to be taken by the finance minister, keeping in mind the difficulties associated with the proposal. And, if he decides to bring investments in mutual funds under the scheme’s fold, the scheme would have to be reworked accordingly.

RGESS was introduced in Budget 2012-13 to attract retail investment in the stock market and expand the reach of the capital markets. The scheme has been designed to provide income tax deduction of 50 per cent on investments up to Rs 50,000 to first-time retail investors with annual incomes of up to Rs 10 lakh. Initially, the lock-in period for investments in the scheme was three years. However, this might be reduced to a year in the long run.

The official said after the one-year lock-in period, investors may trade among different securities, though the scheme would have a three-year maturity period. He added permitting small investors to purchase shares only in the top 100 stocks traded on the BSE and the NSE would act as safeguards.

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