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In its first year, the Rajiv Gandhi Equity Savings Scheme (RGESS), the government’s pet project to draw retail investors to equity markets, hasn’t found many takers. Despite a big marketing push by mutual fund (MF) houses and stock exchanges, the scheme failed to attract many.
In 2012-13, the scheme, designed to bring first-time investors into the stock market by providing tax breaks, managed to garner less than Rs 34 crore of investments, data provided by depositories show. Brokers and analysts said the tepid response resulted from confusion on tax incentives for the product, as well as weak market conditions.
A total of Rs 20,000 RGESS demat accounts were opened with the National Securities Depository Limited (NSDL) and Central Depository Services India Limited (CDSL), the country’s leading depositories. While 9,982 RGESS accounts were opened with NSDL, the value of initial investments through these accounts stood at Rs 32 crore, data on its website showed. CDSL saw about 10,100 RGESS demat accounts; however, it recorded investment of only about Rs 2 crore. A CDSL official said most RGESS demat accounts didn’t have any cash balance.
The flows seen were just a fraction of what many had anticipated from an estimated 30 million taxpayers qualified to invest in RGESS.
Prasanth Prabhakaran, president (retail broking), India Infoline, said the primary reason for the poor response was market volatility. “Volatility in the market is at its peak. Retail participation is at its lowest. RGESS is a good scheme but will only take off when the market becomes a lot more stable,” he said.
Brokers said the equity market was quite volatile, particularly in the March quarter, when most tax-saving investments are recorded. In January, the benchmark Sensex gained 2.4 per cent and fell about five per cent in February. In the first week of March, it rose four per cent, before declining about five per cent.
The mandatory requirement to open separate demat accounts to invest in RGESS also contributed to investors shying away, brokers said.
Of the Rs 34-crore investment in RGESS, about Rs 30 crore came through MFs. While about Rs 3 crore came through direct equity investing, exchange-traded funds (ETFs) accounted for about Rs 40 lakh.
Some industry participants said the changes in RGESS announced in Budget 2013-14 might have left investors confused. In his Budget speech, Finance Minister P Chidambaram had proposed allowing investments through RGESS for three successive years, against only a year earlier. “Lack of clarity on whether the Rs 50,000 investment is to be spread over three years or whether in every year, a fresh investment of that amount would be allowed, left a lot of investors confused. So, these investors just opened the account; they didn’t invest,” said a depository official.
RGESS, announced in Budget 2012-13 and notified in November 2012, provides 50 per cent tax deduction on investments of up to Rs 50,000. Only securities of the top 100 listed companies and public sector undertakings are eligible for investments under RGESS. Investors can also invest through ETFs and MFs.
Ashvin Parekh, national leader (global financial services), Ernst & Young, stated things might be better in the days ahead.
“It is certainly a good concept....it may take a little while to catch on...other savings schemes such as the Public Provident Fund also took some time to reach where they are today,” he said.
