The Government of India has announced a new investment scheme and first of its kind in India, Rajiv Gandhi Equity Savings Scheme (RGESS). The Union Finance Minister, Pranab Mukherjee has announced the scheme in his Budget Speech 2012-13. The scheme is aimed at attracting retail investors into the stock market with sufficient safeguards. The safeguards will be formulated considering the interests of small investors to purchase shares only in the top 100 stocks traded on BSE and NSE.
The RGESS is also expected to increase participation of general public in the disinvestment process of PSUs. The scheme will allow 50 percent deduction for those who invest up to Rs 50,000 in stocks. This is applicable provided their taxable income is below Rs 10 lakh. The funds will not be allowed for withdrawn for minimum three years. The portfolio also will not be changed within one year. The Government if thinking to reduce the lock in period. The proposed scheme can be availed only once in a lifetime. The Government is likely to release modalities of the scheme within a month.
It is observed that the similar schemes are being implemented successfully in Europe in 1970s to increase retail participation in stock markets. A similar scheme but with much higher cut-off was first implemented in France and later followed by Belgium, West Germany and Sweden. On the other hand, Mutual Fund houses are suggesting to implement Rajiv Gandhi Equity Savings Scheme (RGESS) through mutual funds.