Should you invest in Rajiv Gandhi Equity Savings Scheme?

Rajiv Gandhi Equity Savings Scheme (RGESS) is a tax-savings scheme introduced in the last budget. This is a scheme which is for those who earn Rs.10 Lakhs or less and who are first time investors into Equity. But, this scheme is yet to take off in reality as there was no clarity regarding who is a first time investor for long. A clarification has just come in that anyone who has not opened a demat account before 23 November 2012 as a first account holder, is eligible (even if that person’s name comes as a second account holder in some other demat account opened earlier).

One can buy shares from that comprise the BSE-100 or CNX -100.  This gives one a wide range of companies to choose from. Also, the listed navratna, maharatna & miniratna shares are eligible for investment under RGESS. IPOs of PSU, with turnover more than Rs.4,000 crores are also eligible under this scheme. There are certain MF schemes which comply with the conditions laid down under this scheme, which also qualify.

Now a lay investor ideally should not be investing in shares. Government has opened a window for itself to off-load PSU shares to the public – but the temptation needs to be avoided. IPOs are not exactly available for a song these days and PSU shares are not exactly golden apples – apart from various other considerations before investing in any business, the investor also has to appreciate the risks that come with government ownership – the business may not be run for purely business considerations and factors like politics, social engineering, interference from government may loom large.
One can invest upto Rs.50,000/- in a year. There is a lock-in period of one year, for investments done. After that the proceeds have to be reinvested in compliant schemes and the overall lock-in period of 3 years apply.

Now, let us answer the most important question. Should you invest in this.

For Investments done here only a 50% deduction is available under Sec  80CCG. Those who invest in these schemes ( those with incomes of Rs.10 Lakhs or less ) will be in the 10% or 20% slab and the benefit from this would be Rs.2,500/- or Rs.5,000/- respectively, which is not such a great benefit considering that you are locking in all this money. Invest only if it meets with the larger objective of investment for a goal and not just to save tax alone. You can invest only if you have that surplus amount lying around; else just give it a skip – it may not be worth the trouble after all.