In yet another reform measure to deepen capital markets and attract retail investors into equities, the government is set to notify norms for the Rajiv Gandhi Equity Savings Scheme (RGESS) in the coming week.
Government sources said the finance ministry will define the rules of the tax saving scheme with mutual funds likely to be given access with a set of riders.
The scheme, announced in this year’s budget but not yet notified, is a first-of-its-kind which allows the retail investor to invest up to Rs. 50, 000 directly into equity shares and avail tax benefit on 50% of the investment.
The investor, however, should have income of less than Rs. 10 lakhs in a year. The benefits will be made available only to first time investors in equity markets and will come bundled with a lock-in period of three years.
Sources said the government has come around to the view that it is more prudent to allow investors to route their savings to the scheme through mutual funds, rather than exposing to the risks of capital market volatility.
"The mutual funds that will be allowed to access to the scheme will have to fulfil a set of conditions," said a source, who did not wish to be identified.
{{/usCountry}}"The mutual funds that will be allowed to access to the scheme will have to fulfil a set of conditions," said a source, who did not wish to be identified.
{{/usCountry}}"Only those funds that invest in blue chips such as BSE 100 and CNX 100 companies will initially be allowed to route investments to the scheme," said the source. A minor tweaking in the lock-in period norms are also expected, the source said.
Market regulator Securities and Exchange Board of India (SEBI) has also made a strong pitch for allowing asset management companies to create products specifically tailored for the scheme.