There is considerable excitement about the proposed Rajiv Gandhi Equity Saving Scheme for new investors announced in the budget, meant to attract them to the equity market.

"The scheme would allow for income tax deduction of 50 per cent to new retail investors who invest up to Rs50,000 directly in equities and whose annual income is below Rs10 lakh. The scheme will have a lock-in period of three years," finance minister Pranab Mukherjee announced on Friday.

This could prove a major incentive for average investors to put money directly into equities, which they are often wary of doing. ''Tax rebates are always the most important driver of investment behaviour,'' as one expert pointed out.

The scheme is expected to deepen bourses, strengthen investor base and reduce volatility. Above all, it has the potential to bring people who traditionally invest in gold and real estate to the equity market.

Under the proposed scheme, a 50-per cent deduction in short-term capital gains tax will be allowed for new investors in the equity market. Currently, short-term capital gains tax is levied at 15 per cent on all listed securities and units of equity-oriented funds. The new proposal means investors will in effect end up paying just 7.5 per cent tax.

People who have already invested in the equity markets will not get this tax benefit. Analysts said the new scheme might attract people who normally avoid equity markets and instead put money in gold and real estate.