The launch of the Rajiv Gandhi Equity Savings Scheme (RGESS) announced in this year's Union budget to attract retail investors to invest in equities is likely to be delayed further. The regulators have proposed changes in the norms for inclusion of mutual funds (MFs) in the scheme.
This is despite Finance Minister P Chidambaram approving the scheme on September 21. He'd said the department of revenue would notify the scheme and the Securities and Exchange Board of India (Sebi) would issue the relevant circulars to operationalise it in two weeks.
The delay is due to extended consultations on the coverage of products. Officials said consultations had taken place with the Reserve Bank of India, Sebi and the law ministry on RGESS. The regulators have all suggested some changes.
There might be some restrictions with regard to participation of MFs, with only funds meeting specific conditions to be allowed, said those in the know.
Under the scheme as announced in the budget, first-time retail investors with an annual income of up to Rs 10 lakh (Rs 1 million) were to get tax benefits for investing up to Rs 50,000 in stocks.
Later, when Chidambaram announced the details, he'd said exchange-traded funds (ETFs) and MFs would also come under its ambit.
"We have interpreted the relevant section of the Income Tax Act and think it can include ETFs and MFs," Chidambaram had said. And, that ETFs and MFs might be already compliant with the scheme.
He said the move would not require any amendment in the Act in his view but if at a later stage one was required, it would be done.
The scheme is open to retail investors with a demat account but who haven't made any transaction in equity or derivatives till the scheme was notified and to all account holders other than the first one who wished to open a fresh account.
Investments can be made in instalments during a year and the total lock-in period would be three years, including an initial lock-in of a year in the stock, ETF, and MF in which the money has been invested.
Stocks listed under the BSE 100 or CNX 100 or those of government-owned units classified as Navratnas, Maharatnas or Miniratnas would be eligible.
Investments in follow-on offers of these companies would also be eligible for tax deduction.