By Aakriti Rohatgi

*Rajiv Gandhi Equity Savings Scheme

*RGESS

*Rajiv Gandhi Equity Saving Scheme (RGESS) is a new initiative by the government of India aimed at encouraging first time investors to channelize their savings into the capital markets.

*As an incentive, a one time deduction will be available to the new retail investor on the 50% of the amount invested in ‘eligible securities’ in the financial year, subject to maximum investment limit of Rs 50,000.

*For the purpose of claiming benefit under RGESS, the investor needs to invest in select approved securities as notified by the government.

*The Objective

Small Investor

s Savings

Capital Markets

Objective of the Scheme

*Benefits of RGESS

* It provides additional tax benefits over and above the present tax savings schemes under the Income Tax Act.

*Gains, arising of investments in RGESS, can be realized after a year. This is in contrast to all other tax saving instruments.

* Investments are allowed to be made in instalments in the year in which the tax claims are filed.

*Dividend payments are tax free.

* This scheme has a long run benefit of educating the retail investment segment and thereby moving towards financial inclusivity in the country.

* Success of this scheme can lead to transfer of assets from traditional savings instruments such as bank deposits and FDs to the capital markets, leading to diversification in retail investor portfolio and also leading to more productive "capital formation" assets.

*Eligibility For the Investors

*Eligible Securities

Equity Shares in BSE-100 or CNX-100

Equity Shares Of Maharatna, Navratna

and Miniratna

Units Of Eligible ETFs and MFs

Eligible FPOs & NFOs and IPOs of PSUs.

*Maharatnas

*BHARAT HEAVY ELECTRICALS LTD.

*COAL INDIA LTD.

*GAIL (INDIA) LTD.

*INDIAN OIL CORP.LTD.

*NTPC LTD.

*OIL & NATURAL GAS CORP.LTD.

*STEEL AUTHORITY OF INDIA LTD.

Source: Department of Public Enterprises (as on Feb, 2013)

*Navratnas

* BHARAT ELECTRONICS LTD.

* BHARAT PETROLEUM CORP.LTD.

* HINDUSTAN AERONAUTICS LTD.

* HINDUSTAN PETROLEUM CORP.LTD.

*MAHANAGAR TELEPHONE NIGAM LTD.

* NATIONAL ALUMINIUM CO.LTD.

* NEYVELI LIGNITE CORP.LTD.

* NMDC LTD.

* OIL INDIA LTD.

* POWER FINANCE CORP.LTD.

* POWER GRID CORP.OF INDIA LTD.

* RASHTRIYA ISPAT NIGAM LTD.

* RURAL ELECTRIFICATION CORP.LTD.

* SHIPPING CORP.OF INDIA LTD.,THESource: Department of Public Enterprises (as on Feb, 2013)

*Eligible ETFs and MFs

*SBI SENSEX ETF

*Kotaknifty

*Goldman Sachs S&P CNX Nifty Shariah Index Exchange Traded Scheme

*Goldman Sachs Nifty Junior Exchange Traded Scheme

*Goldman Sachs Nifty Exchange Traded Scheme

*Goldman Sachs Banking Index Exchange Traded Scheme

*Motilal Oswal MOSt Shares M50 ETF

*Quantum Index Fund

*Kotak SENSEX ETF

*HDFC Rajiv Gandhi Equity Savings Scheme

*UTI Rajiv Gandhi Equity Saving Scheme

*Tax Benefit

*Lock-In Period

The lock-In period of the scheme is for three(3) years.

There are two types of Lock-In for RGESS

*Fixed Lock-In:

The fixed Lock in period is for one (1) years i.e. from the date of investment into the scheme.

*Flexible Lock-In:

The flexible Lock-In is for next two (2) years of the scheme.

*Flexible Lock-In

In flexible Lock-In, the investor is permitted to trade subject to being compliant for minimum 270 days in each flexible lock in year.

Compliant Conditions:

* Maintenance of value of RGESS portfolio => amount claimed as invested

* If there is fall in the RGESS portfolio due to market fluctuations without any sale, then you are a compliant

Fall in the value Due to Sale:

* Should be compliant till the date of sale

* After the sale:

RGESS portfolio = Amt claimed as RGESS investment

OR

RGESS portfolio= Value of RGESS portfolio before sale

(whichever is lesser)

*Disadvantage of RGESS

*While there is no restriction on investment, only Rs 50,000 is considered for tax purposes. Of this, only 50%, or Rs 25,000, is allowed as deduction.

*Since RGESS is for people with income less than Rs 10 lakh, they will fall in the 10% or 20% tax bracket. The maximum tax savings under this will be Rs 5,000 for people in the 20% tax bracket and Rs 2,500 for those under 10% (beyond the Section 80C benefits).

*Besides, the tax savings are only for the first year, not subsequent years. So, those who don't have enough money or time to invest Rs 50,000 in 2012-13 should consider postponing it to 2013-14

*THANK YOU