Dedicated ETFs For Tax Benefits

     Print Edition: February 2013

Investors entering the equities market this financial year can get tax deductions under the Rajiv Gandhi Equity Savings Scheme (RGESS). Don't know how to invest in equities and get the tax benefit?

While many existing stocks, mutual funds and exchange-traded funds are eligible for investment under the scheme, fund houses are set to launch dedicated funds for this purpose.

As on January 17, four fund houses have sought approval from the Securities and Exchange Board of India (Sebi) to launch equity funds under the RGESS.

The proposed schemes are SBI RGESS Tax Saving Fund, IDBI Rajiv Gandhi Equity Saving Scheme - Series 1, DSP BlackRock RGESS Fund Series 1-5 and LIC Nomura RGESS Fund Series 1 and 2.

While SBI RGESS fund is an open-ended fund (allowing exit anytime), the other three are close-ended. The units of the schemes, which have a lock-in of three years, would be listed on stock exchanges.

ICICI Prudential AMC is also planning to launch two ETFs qualified for RGESS.

"We have an index fund that invests in RGESS-eligible stocks, but it is not listed on the exchanges as required for a fund to be eligible under the RGESS. Besides, investors who want to benefit from the scheme need to have demat accounts," says Himanshu Pandya, vice president, products, ICICI Prudential AMC.

RGESS is a scheme for first-time equity investors with an annual income of up to Rs 10 lakh and who have not invested in stocks before 23 November 2012. Under this scheme, first-time retail investors investing up to Rs 50,000 in approved stocks and mutual funds can claim 50 per cent of the amount as tax deduction under Section 80CCG of the Income Tax Act. This is over and above the Rs 1 lakh limit under Section 80C.


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