Details of Rajiv Gandhi Equity Savings Scheme

The Union Finance Minister Shri P. Chidambaram approved a new tax saving scheme called "Rajiv Gandhi Equity Saving Scheme" (RGESS),exclusively for the first time retail investors in Securities Market. This Scheme would give tax benefits to new investors who invest up to Rs. 50,000 and whose annual income is below Rs. 10 lakh.

The Scheme not only encourages the flow of savings and improves the depth of domestic capital markets, but also aims to promote an 'equity culture' in India. This is also expected to widen the retail investor base in the Indian securities markets.

Salient features of the Scheme are as under:

1 . Scheme is open to new retail investors, identified on the basis of their 

     PAN numbers.This includes those who have opened the Demat Account 

     but  have not made any transaction in equity and /or in derivatives till 

     the  date of notification of this Scheme and all those account holders

     other than the first account holder who wish to open a fresh account.

2 . Those investors whose annual taxable income is ≤ Rs. 10 lakhs are 

     eligible under theScheme.

3. The maximum Investment permissible under the Scheme is Rs. 50,000 and

    the investor would get a 50% deduction of the amount invested from the

    taxable income for that year.

4. Under the Scheme, those stocks listed under the BSE 100 or CNX 100, or 

    those of Public sector undertakings which are Navratnas, Maharatnas and 

    Miniratnas would be eligible. Follow-on Public Offers (FPOs) of the above

    companies would also be eligible under the Scheme. IPOs of PSUs, which 

    are getting listed in the relevant financial year and whose annual turn

    over is not less than Rs. 4000 Crore for each of the immediate past three 

    years,  would also be eligible.

5. In addition, considering the requests from various stakeholders, Exchange 

   Traded Funds (ETFs) and Mutual Funds (MFs) that have RGESS eligible

   securities as their underlying and are listed and traded in the stock 

   exchanges and settled through a depository mechanism have also been

   brought under RGESS.

6. To benefit the small investors, the investments are allowed to be made in 

    instalments in the year in which tax claims are made.

7. The total lock-in period for investments under the Scheme would be three

    years including an initial blanket lock-in period of one year, commencing

    from the date of last purchase of securities under RGESS.

8. After the first year, investors would be allowed to trade in the securities in

   furtherance of the goal of promoting an equity culture and as a provision to

   protect them from adverse market movements or stock specific risks as well

   as to give them avenues to realize profits.

9. Investors would, however, be required to maintain their level of investment

   during these two years at the amount for which they have claimed income

   tax benefit or at the value of the portfolio before initiating a sale

   transaction, whichever is less, for at least 270 days in a year. The

   calculation of 270 days includes those days pursuant to the day

   on which the market value of the residual shares /units has

   automatically touched the stipulated value after the date of debit.

10. The general principle under which trading is allowed is that whatever is 
     the value of stocks/units sold by the investor from the RGESS portfolio,
     RGESS compliant securities of at least the same value are credited back
     into the account subsequently.However, the investor is allowed to take  
     benefits of the appreciation of his RGESS portfolio, provided its value, as
     on the previous day of trading, remains above the investment for which
     they have claimed income tax benefit.

11. For the purpose of valuation of shares, the closing price as on the

     previous day of the date of trading will be considered so that new 

     investors are certain about their debits and credits into the account.

12. In case the investor fails to meet the conditions stipulated, the tax 
     benefit will be withdrawn.

Like all financial products which have reached out substantially to the retail investors (post office savings, life insurance policies etc) through tax benefits, this tax break for direct investment in equity is expected to substantially encourage the retail participation in securities market as well as to enhance their participation in the growth of Indian industry.

Entry of more retail investors are expected to further deepen the securities markets as they bring in long-term stable funds, which can counteract the volatility created by the liquidity providers of the market. The Scheme, thus, also furthers the goal of financial stability and promotes financial inclusion. Since Exchange Traded Funds and Mutual Funds have also been brought under the Scheme, the Scheme should provide encouragement and re-assurance

to the first time investors.

The broad provisions of the Scheme and the income tax benefits under it have already been incorporated as a new section 80CCG of the Income Tax Act, 1961, as amended by the Finance Act, 2012.

Department of Revenue will notify the Scheme and SEBI will issue the relevant circulars to operationalize the Scheme in the next two weeks.

Source: Taxman

My Personal View on how to make your child expose to money?

I often get questions from parents on how to teach their child about money? When is the right age for the child to expose to the money? What they could do to improve financial literacy?  And the list goes on.  My standard answer for this entire question is “Children of today’s age are already exposed to Money from the time He/She is born. Education and financial awareness/literacy are two critical thing which have to be nurtured regularly. But unfortunately our systems always give former the preference and the latter is neglected

If someone would have asked me the same question before starting this profession, I would be reacting like any Parent that money means discussing about banking, transaction, Investments, Money Management etc and would be in an illusion to shield child from aspects of money so that he/she focuses on his/her education, But in reality we would be shielding the child for earning, Investing and  management aspect of money. As I am writing this article, I remember the famous quote from Mr. Robert books to all the parents “Intelligence solves problem and produces money. Money without financial intelligence is money soon gone”. If People still think that money will solve the problem, I am afraid these people will have rough ride.

Today Media is playing a very big role in creating financial awareness and the Generation - Y/Children’s are exposed to those. I, as a financial planner still feel that we should also expose our next generation on the four tenants of Financial planning - Income, Expenses, assets (Investments) and Liabilities (Borrowing) in  a systematic manner. Right age to expose child to money management is from the day he/she learns to spend money. The day you give child currency to purchase a toy or chocolate, ask him / her to make a note of it. The Budget habit should begin from there

There are few things which I have been practicing with my son Ronak, who is 1.8 year old.  When he completed 1 year, my wife made him sow seed in a pot and made him to water it on daily basis.  She made it a regular practice every morning.  Over a period he saw nurtured seed converting into plant. He now waters 2 plants. Firstly this is a good habit in all aspect. From Money training Perspective it will help me to explain my child the concept of nurturing wealth.

Last week, I happened to visit my friend’s place who is practicing CFP for past 3 years, I found a Piggy bank by the name Chocolate bank. When I asked my friend, what is it all about? He replied that, every time he gives chocolate to her daughter, she deposits in her chocolate bank. From the bank she eats chocolate twice a week. She observes Chocolate Pilling Up when deposited and reducing in numbers      when withdrawn. He said this will help him to teach her daughter about the Funds Inflow and outflow in future. 

One more Interesting concept I got to learn from my Client’s driver (Mr. Ramesh) was about goal based planning. I happened to visit his place one Sunday morning. When I visited his house to collect one important document of my client. I saw one Transparent Glass bottle (to be precise Old Horlicks bottle) in the Hall with few currencies. When I asked him what it is, he said this was his Son’s collection. I did not get it at first time, when I asked him the same question for the second time; he replied that the money available in glass bottle was his son’s savings. Since he did not want to spend on buying a piggy bank, he uses to save it in transparent glass bottle. When I asked his son, how did he managed to collect the money, he said that he used to deposit money which were given on festival season and other family occasion. Next to the piggy bank there was a cycle picture. When I asked the child, what is it all about? He replied that he was saving money to buy a cycle. I was surprised with his answer. I think if we all follow this concept we would be in better position to help our child in setting financial goals easily.

If the financial literacy is properly passed on to the kids, then over a period of time it becomes a habit and they start practicing by themselves. It is like planting a tree. You water it for years and then one day it does not need you anymore. Its roots would have gone down deep enough. Then the tree provides shade for your enjoyment.

Over the past 4 years as a financial planner, I have observed that children who were exposed to money management in child hood go on to become financially responsible adults compared to children who are shielded .Don’t shield your child, empower them.  We all live in times of greater and faster change and if we empower people with right information/knowledge they would be taking informed decision and capitalize many bull and bear rally in next 25 to 30 years.

Do share your ideas on the same. It will be beneficial to the group

 - Article by Nishith.B 

Why the world has faith in gold ?

Gold as an asset class is in vogue again with prices reaching a new high in rupee terms. With rising prices, the usual pitch from so called experts too has risen as to how gold is in an “ultimate bubble” phase and is all set to go bust. Frankly, it is nothing new. In 2010, George Soros, one of world’s most accomplished investors, dumped his gold holdings at around $1,200 per ounce but interestingly, he recently surprised the markets by deciding to reinvest into gold at $1,600 per ounce. Pimco, the world’s largest bond fund manager, also added gold allocation in its commodity fund as prices dipped lower around $1,500 per ounce. They are not the only ones to have turned buyers from being sellers. Central banks across the world including Russia, China and other emerging nations have become net buyers after a long time. According to a recent report from World Gold Council, June quarter recorded official sector (central bank sector) gold purchase was more than double compared with the purchases made in the same period last year. If you consider the fact that gold represents only around 1% of total global investment assets, it seems crazy to be not invested in the asset. It is thus important to understand what is driving gold prices before drawing conclusions on the future course of prices.

To start with one has to understand that strictly speaking gold has no value as it is a non-income generating asset. With no cash flows associated with gold it is always at a disadvantage to other income generating assets including real estate. Till few years back it was not widely accepted as an asset class because either fixed income or equity alternatively used to do well. Investor perceptions have, however, undergone a change in the recent past. In this era of negative real interest rates, investors are looking out for assets to protect their investments. While Indians have been among the largest savers, the trend is fast changing as deposit rates have remained below inflation (CPI) for some time now, rendering the real interest rate negative. The combination of low capital gains and low returns in equities on account of a “stagflationary” environment has further reduced investment options. Gold thrives well in this environment, especially given its enviable track record of 11 straight years of positive returns.

Gold continues to remain in a primary bull market since the last decade. History has shown that commodity prices move in cycles of 16-17 years which might mean four-five more years of gold bull market yet to capture. One also should not forget that corrections in bull markets of around 30% are a normal occurrence and have been observed in the past. Investors need to be aware that the last leg of any bull market is often the most profitable and the most volatile. Hence, one should periodically use corrections as opportunities and gain from investing in gold.

Indian investors, however, continue to remain puzzled that though globally gold prices are almost 10% below its all-time highs, the prices in rupee terms are at all-time highs. A large part of this can be attributed to fiscal mis-management in the country, which is reflected in 20% depreciation (yearly) of rupee. The recent doubling of import duty on gold has also led to investors paying higher for gold in rupee terms.

On the positive side, Indian investors are now exposed to more efficient investment options in gold. Other than most travelled route of physical gold or jewellery, mutual funds offer exposure to gold in different fund types such as hybrid funds, exchange-traded funds and fund of funds. Though we have seen demand from India dampening this year, we believe higher inflation would help retain demand in the long run. In India, inflation has played a crucial role in gold’s popularity as an inflation hedge. In addition, globally gold has become more a proxy of the political stupidity and hence a crisis hedge.

One would still ponder on the question: how high is high enough for gold? It is very difficult to answer that question given the fact that it doesn’t have a fundamental value attached to it. We believe that it isn’t the gold prices that are moving up; it is the value of currencies that is depreciating which is pushing gold prices higher. Gold prices act as good proxy to lack of confidence in the fiat currencies. The crisis which started with companies being under financial stress has now moved on to countries. Gold acts as a hedge for investors in such times. If one believed that the future is bright, businesses will pick up and the real interest rates will turn positive, would one still buy gold? The answer would be no. But in the current market environment where the US, the world’s largest economy, is running at more than 100% debt-to-GDP ratio and Europe is struggling to keep its union up and running, we can be reasonably comfortable in believing that good times are farther than they appear. Till then, have faith in gold!

Source : Ritesh Jain - Head of Investments - Canara Rebaco AMC