RGESS : Rajiv Gandhi Equity Savings Scheme

As things stand , the RGESS or Rajiv Gandhi Equity Savings Scheme seems to be a dud. The full details of this scheme were supposed to come out in may … but with a paralized govt busy with President elections everything else including the economic perils plaguing the country, according to the Congress bosses can wait.

Rajiv Gandhi Equity Savings Scheme

  • For New Equity investors earning less than Rs10 lakh annually.
  • For investments in the top 100 stocks traded on BSE (Bombay Stock Exchange) and NSE (National Stock Exchange).
  • Churning of portfolio is not permitted during the first year.
  • Maximum investment allowed Rs 50,000.
  • Maximum Deduction U/s 80C Rs. 25,000 (50% of Rs. 50000)
  • Lock in period – 3 years
  • Possibility of announcement of a no frills demat account.
Problems faced by Small Investor
  • Over regulation, one needs to sign upto 70 times to open a trading and demat account and submit 2/3 photos, and KYC is a big hassle that is not done once per individual but for every demat form.    
  • Small investors cannot claim costs .. Travel costs , Demat Charges and Demat AMC etc which most often exceeds the dividend received on their shares. This is cheating.
  • Overcharging by NSDL / DPS which charges both an AMC ranging from 300 to 500 taxes extra. and minimum transaction charges starting from Rs 15 to 25. 
  • Cheating by some DPs who have hidden charges and make conditional promises like free demat accounts, no AMC until you make a transaction in that account etc and dont honor them. A company with a tiger logo is/used to be notorious at this.  
  • Archaic laws that force people to open multiple demat accounts to demat their old shares held with multiple joint holders.
  • Multiplicity of taxes and over taxation of delivery based trades and Double/High taxation of Share dividends(Corp tax + DDT). 
  • A small investor pays the same dividend distribution tax of 15% as say Mukesh Ambani..who has promoter perks, FIIs (including benami industrialists and politicians) investing via PNs from Mauritius dont pay any tax on STCG is it fair ?
  • Cumbersome legal procedure in case of loss of certificates or death of investors holding physical shares. Companies insist on expensive and cumbersome formalities like surety LOA etc for paltry amt of shares. Costs sometimes exceeds the mkt value of shares. 
Flaws in Congress UPA Government thinking.
  • The scheme is poorly drafted. New Investor is undefined. There is no logic in dividing the small investor class into two parts new and old. 
  • Long term capital gains are tax free. So why will one lock in for 3 years if they can exit tax free after one year ?
  • It was people from this very govt that considered direct equity investing by Small investors risky and promoted Mutual Funds then why create this scheme ?  The top 100 stocks include likes of Unitech and DLF and RCom shares that have fallen more than 80% within a short span. Remember K10 stocks like HFCL?
  • The main problem plaguing the markets is lack of returns and falling valuations. The govt has not shown long term vision or thinking or even made minor investor friendly reform for the last 8 odd years. It has poor corporate governance standards.
  • Worse the govt populist policy means it cheats small PSU investors by unethically milking returns of PSUs like ONGC for supposed public good which is ruinous in the long term. It favors private Cos over PSUs .. eg NTPC vs Reliance Power ? saga, Coal India agreements saga and Coal-gate ?.
  • PSU Company share prices have fallen by 25 to 65% during the Congress UPA regime … notably SCI. 
  • Small investors directly or indirectly via funds invested with FIs like LIC have burnt their hands in Congress era Disinvestment.
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