Chidambaram lures first-time investors, launches RGESS

The government's hands-on approach to pull up a sagging economy got an applause at Taj Vivanta in Mumbai today, with Finance Minister Mr. P Chidambaram launching an equity scheme in an attempt to lure new investors to the stock market.

The highlight of Rajiv Gandhi Equity Savings Scheme, or RGESS, as it is commonly known as, is that it exempts 50 per cent of the investment from any kind of tax obligation. For example, if one invests Rs 50,000, the amount eligible for tax deduction from their income will be Rs. 25,000.

"The government will modify Rajiv Gandhi Equity Savings Scheme in the upcoming Budget to make it more attractive," Mr. Chidambaram said.

The maximum amount eligible for claiming benefit under RGESS is Rs. 50,000, and the scheme has a lock-in period of three years - fixed lock-in during the first year, followed by a flexible lock-in for subsequent two years.

RGESS does not come as a delight for existing traders as it is exclusively for first-time retail investors. This means that an existing player cannot avail of the benefits. However, if a person is holding a joint demat account, he stands eligible make an investment.

The scheme, notified on September 21, 2012, has another cavaeat - only those whose annual income is below Rs. 10 lakh are elegible to invest in this scheme. The move clearly shows the government's intent to encourage potential small investors to invest their savings in the stock market.

Another attention-drawing feature of the scheme is that investors would be able to buy stocks directly, as well as through mutual funds or exchange traded funds (ETFs).

Eligible investments are restricted to the top-100 stocks traded on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE), as well as state-owned companies.

The scheme was proposed in the 2012-13 Union Budget by the then Finance Minister Pranab Mukherjee.