Friday, September 21, 2012

Rajiv Gandhi Equity Savings Scheme (RGESS)

The Union Government, has finally cleared the Rajiv Gandhi Equity Savings Scheme (RGESS) which is supposed to help bring back retail investors into the stock market, and more importantly make stock investment more attractive from gold purchases which results in higher forex outflow. The good part is that this time the RGESS benefit has been extended to mutual funds as well which was not the case before in it's previous form. 

But it is really doubtful how much interest it will really spark among the retail investors at least in short to medium term when markets are hitting 52 week high and retail investors have been largely on the sidelines. Consider this, Investors whose annual income is less than Rs 10 lakh can invest up to Rs 50,000 and get a deduction of 50 per cent of the investment. So, if you invest Rs 50,000, you can claim a tax deduction of Rs 25,000 (50 per cent of Rs 50,000). By capping it for investors whose incomes are less than Rs 10 lakh, a person in the 20 per cent tax bracket can get this benefit. And the maximum benefit will be Rs 5,000 (20 per cent of Rs 25,000).  

So the higher income group who usually invest in equities will not get any motivation out of this scheme in it's current form as the incentive is very small.

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