SEBI to announce guidelines for investments through RGESS

The Securities and Exchange Board of India (SEBI) is expected to soon come out with guidelines on investments in the Rajiv Gandhi Equity Savings Scheme (RGESS) through exchange-traded funds (ETFs) and mutual funds.

In keeping with a promise made in the Budget, finance minister P Chidambaram announced on Friday that the RGESS, aimed at promoting retail participation in equity markets through tax breaks, will be open to investments routed through mutual funds (MFs) and ETFs alongside direct investment by retail investors.

The RGESS provides 50 per cent tax relief for first-time investors in the stock market who earn less than Rs10 lakh a year and they can invest up to Rs50,000 in the scheme.

However, market experts and would-be investors said while the scheme is well-intentioned, the rules are too complicated for first-time equity market investors and pose a lot of uncertainties.

 ''SEBI is planning to come out with the guidelines for the scheme within a month and would address some concerns that have been raised,'' the Hindustan Times cited a senior SEBI official as saying on Sunday.

Market experts are sceptical about issues such as whether the Income-Tax Department or SEBI would be responsible for monitoring investors and said that there would be more clarity after the market regulator issues the guidelines.

There are also concerns on whether the secondary market purchase of mutual funds and ETFs would be eligible under the scheme and whom could the first-time retail investors approach for the scheme.

The mutual fund industry stands to gain as RGESS combined with SEBI's recent initiatives to extend the reach of mutual funds beyond the top 15 cities could assist fund houses to gain new markets.