 "RGESS flops in second year as well")
The UPA government's tax-benefit scheme designed to get more investors into the equities market failed to take off in its second year as well.
The so-called Rajiv Gandhi Equity Savings Scheme (RGESS), which gives individuals extra tax exemption, got fewer investments during 2013-14 compared to the preceding fiscal, its year of introduction.
The scheme saw investments worth less than Rs 35 crore from less than 6,000 new RGESS-demat accounts during 2013-14, depository data shows.
RGESS, introduced by former finance minister Pranab Mukherjee in 2012 in the budget, was aimed at boosting the culture of equity investing in the country, where less than 2% of the population has demat accounts required to make investments into the stock market.
As on March 2014, the two depositories---National Securities Depository (NSDL) and Central Depository Services India--- together had a total of 41,301 RGESS demat accounts, with less than half of them having actual investments. Also, around half of these accounts were opened during the first year.
"The scheme was structured to flop. It was too complex even for seasoned investors forget about new investors understanding it To begin with it shouldn't be restricted to just first-time investors," said Sudip Bandyopadhyay, president, Destimoney Securities.
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Notified in November 2012, RGESS provides for 50% tax deduction on investment of up to Rs 50,000 made by 'first time investors' in select stocks, mutual funds or exchange traded funds (ETF). The scheme has a three-year lock in but unlike other investments products allows investors to churn their investment portfolio or book profits from second year onwards provided that the initial investment balance is maintained.
"It isn't surprising that the RGESS has got few takers. It was too complex. Also, there wasn't much push given to it from either the finance ministry or exchanges in the second year," said Nilesh Sathe, chief executive officer, LIC Nomura Mutual Fund.
The scheme has fared badly in the second year despite certain relaxations made by the government. The centre had raised the income limit for eligibility from Rs 10 lakh to Rs 12lakh. It also allowed investors to invest over a three year period, instead of just one.
Market players said that the scheme could have done well had it been easier to understand and to operate. The scheme was originally designed to promote direct equity investments but later allowed investments through even mutual funds and ETFs.
Interestingly, bulk of investments into the scheme came through the mutual fund route, while only less than a fourth came from direct investments into stocks or ETFs.
More than half a dozen fund houses had launched RGESS-oriented new fund offers (NFO) in recent months.
Prasanth Prabhakaran, president of retail broking at India Infoline (IIFL) blamed volatile market conditions for the lukewarm response to the scheme.
"It is very difficult to get retail participation into equities when the stock market is volatile. Last two-three years the market condition haven't been ideal for retail participation. The thought process behind the scheme was right but the timing was wrong." he said.
"We need such schemes to promote equity investment culture in the country as currently only 2% of the population invests in the markets," Prabhakaran said.
Some market players expressed doubt whether the scheme would continue if there is a change in guard at the centre post the elections.
Tepid response again
- Investors shun RGESS scheme for the second year
- Scheme gets fewer investments in FY14 compared to FY13
- Only 20,000 new RGESS accounts opened; little active
- Most investors invested through mutual funds
- Scheme too complex, say experts
- Lack of promotion from stakeholders in the second year