The Rajiv Gandhi Equity Savings Scheme (RGESS) is an initiative launched by the Ministry of Finance, Government of India, to encourage first-time retail investors to participate in the equity markets. Named after former Prime Minister Rajiv Gandhi, the scheme aims to promote financial inclusion and equity culture among small investors by providing tax benefits on investments in eligible securities.
Objectives of RGESS
The primary objectives of the Rajiv Gandhi Equity Savings Scheme are:
- To encourage first-time retail investors to invest in the equity markets.
- To promote financial inclusion by enabling small investors to benefit from the growth of the capital markets.
- To provide tax benefits to investors, thereby reducing the cost of investing in equities.
- To enhance the flow of savings into the productive sectors of the economy through the capital markets.
Key Features of RGESS
- Eligibility: The scheme is open to new retail investors who have not opened a demat account or have not made any transactions in the equity segment before the scheme’s introduction. Investors should have a gross annual income of up to Rs. 12 lakhs.
- Investment Options: Investments can be made in eligible securities such as stocks listed on the BSE 100 or CNX 100 indices, equity shares of Maharatna, Navratna, and Miniratna public sector undertakings (PSUs), and units of equity-oriented mutual funds and exchange-traded funds (ETFs).
- Lock-in Period: The scheme has a three-year lock-in period, which is divided into two phases:
- Fixed Lock-in Period: During the first year, investments are locked in and cannot be sold or pledged.
- Flexible Lock-in Period: During the subsequent two years, investors can trade eligible securities, provided they maintain the minimum investment amount.
- Tax Benefits: Investments up to Rs. 50,000 under RGESS qualify for a 50% deduction from the taxable income under Section 80CCG of the Income Tax Act. This deduction is over and above the deductions available under Section 80C.
- Demat Account: Investors must open a demat account with a depository participant (DP) to invest under RGESS. The demat account must be designated for RGESS purposes.
How to Invest in RGESS
First-time retail investors can invest in the Rajiv Gandhi Equity Savings Scheme by following these steps:
- Open a Demat Account: Open a new demat account with a depository participant (DP) and designate it for RGESS purposes.
- Submit RGESS Declaration: Submit a declaration to the DP stating that you are a first-time investor and intend to avail the benefits of RGESS.
- Invest in Eligible Securities: Invest in eligible securities such as stocks listed on the BSE 100 or CNX 100 indices, equity shares of eligible PSUs, and units of equity-oriented mutual funds and ETFs.
- Claim Tax Benefits: At the end of the financial year, claim the tax deduction under Section 80CCG while filing your income tax returns.
Benefits of RGESS
The Rajiv Gandhi Equity Savings Scheme offers several benefits to first-time retail investors:
- Tax Savings: Provides tax benefits under Section 80CCG, reducing the cost of investing in equities.
- Capital Market Participation: Encourages new investors to participate in the equity markets and benefit from the growth of the capital markets.
- Financial Inclusion: Promotes financial inclusion by enabling small investors to access and invest in the equity markets.
- Portfolio Diversification: Allows investors to diversify their investment portfolio by including a range of eligible securities.
Impact of RGESS
Since its inception, the Rajiv Gandhi Equity Savings Scheme has had a positive impact on the investment landscape in India:
- Increased Retail Participation: The scheme has encouraged a significant number of first-time retail investors to participate in the equity markets.
- Enhanced Financial Literacy: By promoting equity investments, the scheme has contributed to increased financial literacy and awareness among small investors.
- Boost to Capital Markets: The influx of new retail investors has provided a boost to the capital markets, enhancing liquidity and market depth.
Challenges and the Way Forward
Despite its benefits, RGESS faces several challenges that need to be addressed to enhance its effectiveness:
- Awareness: Increasing awareness about the scheme among potential investors is crucial for higher participation. Financial education campaigns and investor awareness programs can help in this regard.
- Simplification: Simplifying the scheme’s processes and requirements can make it more accessible and attractive to first-time investors.
- Incentives: Providing additional incentives and benefits can further encourage retail participation in the equity markets.
Conclusion
The Rajiv Gandhi Equity Savings Scheme (RGESS) is a commendable initiative by the Ministry of Finance, aimed at encouraging first-time retail investors to participate in the equity markets. By offering tax benefits and promoting financial inclusion, the scheme provides an attractive opportunity for small investors to benefit from the growth of the capital markets. Continued efforts to increase awareness, simplify processes, and provide additional incentives will ensure the scheme’s success and its positive impact on India’s investment landscape.
