Rajiv Gandhi Equity Saving Scheme :- An Attractive opportunitiy

Rajiv Gandhi Equity Saving Scheme is a new tax savings scheme through which new investors can claim tax benefit of maximum Rs.25,000 on an investment of Rs.50,000 .

The Salient Features are as Follows.

• The scheme is applicable only to Individuals .
• The Total Income of the investor should not be more than Rs. 12Lakh
• The assessee should be a new investor who has not done any prior investment in equity or derivative instrument before 23^rd Nov,2012 .
• The Tax Deductions can be claimed under section 80CCG of the Income tax .
• The Tax deduction can be claimed only when investment is made through Demat account.
• The Rajiv Gandhi Equity Savings Scheme is not applicable for NRI.

New retail Investor means the following resident individuals

•   Any individual who has not opened a demat account and has not made any transaction in the derivative segment as on 23^rd Nov,2012
•  Any individual who has opened a demat account before the notification of the scheme but has not made any transactions in the equity segment or the the derivative segment till the date of the notification of the scheme.
•  Any Individual who is not the first account holder of an existing joint demat account shall be deemed to have not opened a demat account for the purpose of this scheme.
•  Individual possessing physical shares are also considered new Investor, only if they have not invested through any other Demat account.

Eligible securities under the Rajiv Gandhi Equity scheme are as Follows.

• Equity Shares on the day of the purchase , falling in the list of equity declared as “BSE100” or “CNX 100” by Bombay stock Exchange and the National Stock Exchange
• Equity Shares of public sector enterprise which are categorized as Maharatna, Navratna or Miniratna by Central Government.
• Units of Exchange traded Funds (ETFs) or Mutual Fund (MF) schemes with Rajiv Gandhi Equity Savings Scheme (RGESS)
• Follow on Public Offer
• Initial Public Offer of a public sector undertaking wherein the government shareholding is at least fifty-one percent.
• To check the list of stocks eligible is as Follows. http://www.nsergess.com/rgess-eligible-securities.html

Period of holding requirements for taking the Tax benefit

• The period of holding of eligible securities shall be three years to be counted in the manner detailed here under.
• All eligible securities are required to be held for a period called the fixed lock-in period which shall commence from the date of purchase of such securities in the relevant financial year and end one year from .

• The new retail investor shall not be permitted to sell, pledge or hypothecate any eligible security during the fixed lock-in period.
• The period of two years beginning immediately after the end of the fixed lock-in period shall be called the flexible lock-in period.

• The flexible lock-in period is for next two years from the date of the end of the fixed lock-in period. During this period, you are permitted to buy and sell eligible securities, provided that for a cumulative period of 270 days each year, you are maintaining the value of your initial investment. 
• In short, the value of the investment portfolio should be equal to or more than the amount you’ve claimed as investments for the purpose of deduction

How to Start Investing :-

• Open a demat account with any of the Banks or a Broker.
• Designate the Demat account as RGESS account if you have an existing demat account where you haven’t traded , then you should designate that account as  RGESS account. You can Use the Form A for this Purpose.
• Purchase eligible stocks through one or more transactions across the year
• Claim Tax benefits under Section 80CCG when you file your Income tax returns
• The Investment made under RGESS is locked in for a total period of three years. however only the First year is a Fixed lock in period .During the Flexible lock in Period the investor has  a freedom to book profit or alter the securities in his /her portfolio provided the value of the securities in the demat account is maintained equal to the amount declared as investment under the Rgees in the First year.

It is very difficult for the first time investor to manage the Portfolio and generate Profit from it as there are lot of things which needs to be taken care .some of the questions are as follows.

• Which Stock to Pick?
• When to sell and When to Buy?
• Should the shares be Bought in lump sum or should he divide it into smaller amounts.
• Or should he opt for Mutual fund schems or ETF?

The Best way to save tax through RGEES is to choose ETFs of Mutual Funds as ETfs have greater Benefit. Some of them are as follows.

• Expense ratio of ETFs are lowest among all schemes
• They are traded as shares and can be sold when you need.
• There are no Fund manager Risk
• ETFs are more transparent , investors can exactly see which securities are held in each ETF
• ETFs are priced throughout the day and can be bought and sold on the exchange.
• RGEES Mutual funds which are currently available do not have any past track record of their performance thus it is advisable not to invest in these schemes.

You should go for any nifty or sensex ETFs rather than a particular sector ETF as Investing In Particular Sector ETF increases the Risk .