Rajiv Gandhi Equity Saving Scheme: Personal Reaction of a Newbie Retail Investor

The announcement of the Rajiv Gandhi Equity Savings Scheme (RGESS) in the Union Budget 2012-13 was a point that caught the maximum attention of the common man. In fact, talks of a tax exemption always do! But unfortunately for me, the announcement of RGESS, along with the news reports that followed, left me with more questions than answers. The Finance Ministry has said that the details for this tax exemption scheme for new retail equity investors would be announced in a month and I sincerely hope that they hurry the hell up!

Why I relate to it:

While reading through one of the analysis of the scheme, I realized that this one has my name written all over it. I have never invested in stocks before and my annual pay packet is below Rs. 10 lacs. So I am the target group for this scheme! The Finance Minister is inviting me and others like me (almost 1.5 crore people) to the stock market and telling us how wonderful it is and that I should invest in it. But simply because a man is gesturing at me with a candy bar doesn’t mean I’m going to follow, right? I have my fears. I have my confusions. And like every Indian with an Internet connection, I have my two cents worth to improve the scheme.

My Fears:

I often pass by the BSE building. And when I see it, the image which comes to my mind is that inside it must be a riotous madhouse, full of screaming men, where everyday dreams of some are made, while those of others are shattered beyond repair.
And so I have my apprehensions about the institution of stock market. To get the tax exemption from this scheme I have to invest in equity. What if I am unable to invest properly? What if the companies I invest in go bankrupt and I lose all the money? What if the lock-in period turns out to be disastrous and I am left helplessly watching as the value of my investment erodes? Is there a safety net in place for me? Can I at some point during the lock-in period, go to the market and sell a stock which is a dud? Worst case scenario, can I liquidate my investment and lose the tax benefit rather than watch on as my hard earned wealth disappears?

My Confusions:

The first question on everyone’s minds is whether mutual funds are going to be included or not. While the announcement of ‘direct’ equity investment pretty much rules out mutual funds, their inclusion continues to be debated and lobbied for. Among other confusions I have are: Is there a provision for the inclusion of only the BSE 100 stocks? If a good buying opportunity comes in during the lock-in period, am I allowed to sell a commensurate amount and replace the sold stocks with the new, better stocks? Is this scheme a one-time scheme or is it going to be a recurring scheme? How does the Government aim to define ‘new’ investor? If my NAV rises above Rs. 50000, can I sell and plough in the profits I make?

When the Budget was announced the Finance Minister left some mystery around this scheme. When the Ministry was asked, the reply was that the exact nature of the scheme will be clarified within a month. And I sincerely hope that they touch upon the confusions that I have listed out.

My Optimism as a new equity investor:

But despite these confusions and fears, I eagerly await the clarifications on the RGESS. I do feel truly optimistic about the introduction of this scheme. At the outset it just seems like the tonic which the stock market needs after uncertainty seen over the last few years. I have long felt that the stock market has been far too reliant on the FIIs and other institutional investors who create an unnecessary flutter in the stock market when they come and go. Also for the newbie investors it is a much required push into the stock market world, because stocks can actually make your money work for you. If invested using a safe and sound methodology using a long-term perspective, stocks can give you good returns. In the same perspective, the three-year lock-in period too is a sensible move given that it protects me and other new investors from making haphazard sell-moves on short-term cues.

Through the creation of this scheme, I believe others like me too will be eager to enter the stock market. And maybe one day majority shareholding will be in the hands of the promoters and retail investors!

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  • Pjmehta12345

    Yes, His fear is right. There is no details available on thsi subject. Do you think, Govt. has announced scheme  without making home work? Finance institutions like SEBI also not educating investors? Is it ground to make another scam?.

  • AA

    Let us wait for the details. It is too early to ask any questions. To me it appears to be a non starter.

  • Arundubey45

    It is needless exercise till the FM comes with the details. Whether we think positive or negative, it is all a speculation. why are we in hurry?

  • Sadashiv Rege

    Failure of mutual funds to provide cushion to market has led to this scheme. Investors ignored ELSS by mutual funds and preferred other avenues such as NSC, PPF,etc. This scheme can provide a strong base by providing long term investments as it has no other options. There has to be a first time for investors some time, otherwise our markets will continue to be used by FIIs for profiting as per their will.

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