Equity Shares: Investing In Rajiv Gandhi's Vision

The Rajiv Gandhi Equity Savings Scheme (RGESS) was a mutual fund and tax advantage scheme offered by the Government of India to encourage small investors to invest in the domestic capital market. It was first announced in the Union Budget of 2012-13 and extended in 2013-14. The scheme was designed for first-time investors with little to no experience in the securities market and who had a gross income per year below a certain amount. The income ceiling was raised to INR 12 lakh in 2013-14, and investors could avail of a 50% tax deduction on investments of up to INR 50,000 per financial year for three consecutive years. However, the scheme was phased out in 2017 due to a low number of assessees.

Who is eligible for the Rajiv Gandhi Equity Savings Scheme?

The Rajiv Gandhi Equity Savings Scheme (RGESS) was a tax-saving scheme aimed at first-time retail investors with little to no experience in the securities market and a gross annual income of up to 12 lakhs. The scheme was announced in the 2012-2013 Union Budget of India and was expanded in 2013-2014. However, it was phased out by 2018 due to a lack of adoption.

To be eligible for the RGESS, an individual must be a resident of India and have a gross total income of less than or equal to 12 lakhs per annum. Additionally, they should not have a history of trading in the derivatives or equity markets. Only individuals could hold such an account; Hindu Undivided Families (HUFs), trusts, or corporate entities were not eligible.

The scheme offered tax benefits to 'New Retail Investors', defined as those who had not opened a Demat account or traded in the derivative segment before the RGESS account opening date. If an individual already had a Demat account, they could still be eligible if they had not made any transactions in equity or the derivative segment before designating their account as RGESS.

The benefits of the scheme included a 50% tax deduction on investments of up to 50,000 rupees in eligible securities, which included equity shares of selected companies in the BSE-100 or CNX-100, public sector enterprises categorised as Maharatna, Navratna, or Miniratna, and more.

What are the benefits of the scheme?

The Rajiv Gandhi Equity Savings Scheme (RGESS) was designed to encourage small investors to invest their savings in the domestic capital markets. The scheme was aimed at first-time retail investors with little to no experience in the securities market and a gross income per year below a certain amount.

The benefits of the scheme are as follows:

• Under Section 80CCG of the Income Tax Act, investors can qualify for a 50% deduction of the amount invested during the year, up to a maximum of INR 50,000 investment per financial year for three consecutive assessment years. This results in a maximum tax saving of INR 25,000.
• The scheme is open to all new retail investors with a gross total income of less than or equal to INR 12 lakh.
• There is no minimum eligible investment amount.
• The scheme encourages the improvement of the domestic capital markets by promoting a culture of equity investments in the country.
• The scheme aims to expand the base of retail investors in the securities markets of India and, in turn, bring about financial inclusion and financial stability.
• The scheme includes a lock-in period of three years, which provides investors with some flexibility and the opportunity to take advantage of positive market movements.
• The scheme includes a range of eligible securities for investment, including equity shares of selected companies, public sector enterprises, mutual funds, exchange-traded funds, and initial public offerings.
• The scheme mitigates risks by restricting investments to select large-cap stocks.

What are the risks of the scheme?

The Rajiv Gandhi Equity Savings Scheme (RGESS) is subject to the usual risks of investing in the capital markets. As with any equity scheme, there is a market risk involved. Investors in the RGESS run the risk of losing money in the equity market, just like any other investor in the securities market.

However, the Ministry of Finance did put in place measures to safeguard the interests of first-time investors. These include restricting investments to select large-cap stocks and implementing a lock-in period with enough flexibility to benefit from positive market movements.

The risk can be further minimised by expanding the investment base. One could also benefit from diversification and consequent risk minimisation. However, the scheme does not guarantee assured returns in the capital markets.

It is important to understand the risks involved and to what extent they can impact you. It is recommended that you seek sound financial advice before investing.

How do I invest in the scheme?

To invest in the Rajiv Gandhi Equity Savings Scheme (RGESS), you must be a first-time investor in the securities market with a gross total income for the year of less than or equal to 12 lakh INR. The scheme is designed for new investors with little to no experience in the securities market.

To invest, you must open a DEMAT account or designate your current account as an RGESS account by submitting a declaration in Form A to your Depository Participant (DP). You can then approach any SEBI-registered stockbroker or mutual fund distributor to make investments in eligible securities.

Eligible securities include:

• Equity shares of companies in the 'CNX-100' or 'BSE-100'
• Public sector enterprises categorised as Maharatna, Navratna, or Miniratna by the Central Government
• Follow-on Public Offers (FPOs) from the above-mentioned companies that are RGESS-compliant
• Units of Mutual Funds (MFs) and Exchange-Traded Funds (ETFs) that are RGESS-compliant
• New Fund Offers (NFOs) of the above-mentioned companies that are also RGESS-compliant
• Initial Public Offerings (IPOs) of PSUs with a government stake of 51% or more

It is important to note that the scheme has a lock-in period of three years, with a fixed lock-in period of one year and a flexible lock-in period of two years. During the fixed lock-in period, you cannot sell, pledge, or hypothecate any eligible securities. During the flexible lock-in period, you may be able to sell or pledge eligible securities under certain conditions.

RGESS offers tax benefits to new investors, allowing a 50% deduction of the amount invested during the year, up to a maximum of 50,000 INR. These tax benefits are available for three consecutive assessment years.

What are the tax implications of the scheme?

The Rajiv Gandhi Equity Savings Scheme (RGESS) offers tax benefits to new retail investors with a gross total income of less than or equal to 12 lakhs per annum. Under Section 80CCG of the Income Tax Act, investors can qualify for a 50% deduction of the amount invested during the year, up to a maximum of 50,000 INR of investment per financial year from their taxable income, for three continuous assessment years. This means that an investor can save up to 25,000 INR in taxes in a year.

The scheme is designed for first-time investors with little to no experience in the securities market. The eligible securities that can be bought through a DEMAT account are automatically locked in during the first year, and the investor is not allowed to sell or pledge any eligible security during this time. After the fixed lock-in period, the investor can trade these securities but under certain conditions. The lock-in period is three years, including a fixed lock-in period of one year and a flexible lock-in period of two years.

To be eligible for the tax benefits, investors must not have a history of trading in the derivatives market and equity market and must follow the scheme's compliance. The investments can be made in companies that belong to BSE-100 or CNX-100 and their "follow-on public offers", IPOs of PSU with 51% or more government holding, Mutual Fund or Exchange Traded Fund Schemes that invest in RGESS-eligible securities, and PSUs designated as Maharatna, Navratna, or Miniratna and their "Follow-on Public Offers".

It is important to note that the RGESS has been phased out since April 1, 2017, and no new investors can enrol. However, individuals who have already invested can still claim tax deductions.

Frequently asked questions