Investors to benefit from Rajiv Gandhi Equity Scheme: Experts
New Delhi: The stock market and mutual funds stand to attract more investments from the Rajiv Gandhi Equity Scheme, but it could be initially complicated for first-time investors, experts feel.
Continuing with the economic reform process, Finance Minister P Chidambaram last Friday announced approval for the Rajiv Gandhi Equity Savings Scheme (RGESS), which is aimed at attracting more investments in equity markets and mutual funds, rather than in assets like gold.
Commenting on the scheme, PwC India's Asset Management Leader Gautam Mehra said: "The mutual funds stand to gain as this combined with Sebi's recent initiatives for extending the industry reach beyond top 15 cities, could assist fund houses to attract funds from new investors in such towns or cities."
He, however, added that the proposals appeared to be complex for first time equity investors.
"It is a good way to attract investment in the equity market. As a growing nation, compared to other countries, the equity exposure for small investors in India is extremely small. This scheme will go long way in attracting equity investment in the market by small investors," brokerage firm Sharekhan's Research Head Gaurav Dua said.
RGESS, announced in the budget this March, would provide 50 percent tax deduction on investments up to Rs 50,000 to investors whose annual taxable income is below Rs 10 lakh.
"This is an excellent initiative by the government to encourage small investors to participate in the capital markets. The penetration of investment in equities is very low in India, this initiative will help overcome this," Goldman Sachs Asset Management India co-CEO Sanjiv Shah said.
"The ambit of RGESS stands extended to investments in Mutual Funds and Exchange Traded Funds, which may be more prudent investment avenues for first time equity investors," PwC India's Mehra said.
"Although lock-in requirements are proposed to be diluted from three years to one year with limited flexibility to trade and re-invest in subsequent two years, the proposals appear to be complex for first time equity investors," he added.
These decisions, which aim at attracting more household savings to equity markets, came within days of reform measures like hike in diesel prices and opening multi-brand retail sector for foreign direct investment.
The RGESS would cover stocks listed under BSE 100, CNX 100 and Navratna, Maharatna and Miniratna public sector firms.
CNI Research chief Kishor Ostwal said: "The Rajiv Gandhi scheme is addressed to top 100 scrips, which means retail investors are not benefited. This is favouring only FIIs."
The Finance Ministry would soon notify the scheme and market regulator Sebi is expected to issue relevant circulars to operationalise it in about two weeks.