Hope for a Comprehensive Fix for RGESS Flaws

The Rajiv Gandhi Equity Savings Scheme is convoluted and cumbersome, but the government looks likely to fix the problems for next year...

Over the last few weeks have been somewhat eventful for the Rajiv Gandhi Equity Savings Scheme. One, the scheme itself is well on its way with a number of RGESS-specific mutual funds now available. Equity investments under the RGESS are also operational with some brokers actively canvassing for investors. Last week, the finance minister also participated in a function launching RGESS investments through the BSE with the first clutch of investors being handed shiny RGESS certificates of some sort that they held up triumphantly while posing for photographs.

While the RGESS is definitely a step forward, being the exclusively equity-oriented tax-saver in a long time, it is also clearly a work in progress. The scheme is convoluted and riddled with needless complications. One example: while you can invest in mutual funds under the scheme, you must do so through your demat account, for some reason that has never been made clear. Now, it so happens that of the three possible methods of fund investing--direct, distributor or demat—the last is the most cumbersome and the least popular. But the RGESS makes it compulsory, as if the goal was to get people to open demat accounts.

However, such as it is, it’s still a way of saving Rs 5,000 of tax if you have never invested in stocks before. But remember, if you are being pitched an RGESS investment by someone, you must make this Rs 50,000 investment only if you have exhausted the Rs 1 lakh limit under section 80C. For a given amount invested, RGESS yields only half the tax saving of Section 80C and so it makes sense to use up the latter first.

One has good reason to hope that these two months of this financial year is the only time that the RGESS will exist in its current form. A number of authorities, including the finance minister himself, have said that the scheme will be modified based on the learnings this year. Hopefully, we’ll have something much more useful next year.

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Thanks and Regards

CA Kapil Talreja

(Practising Chartered Accountant, Personal Finance Consultant & a Member of JagoInvestor Group)

(Mobile No.: 91-8734856509)