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(ELSS) with equities first and then consider investing under the Rajiv Gandhi Equity Savings Scheme ( RGESS ).
While fund houses are launching tax- saving investing schemes under the RGESS, which provides exemption to investors who have not invested in direct equity or who don't have a demat account. LIC Nomura Mutual Fund, which launched its RGESS- II, is hoping to garner about ₹ 50 crore under this. Last year, under RGESS - I it had collected ₹ 17 crore,. In December 2013, the Income- Tax department announced that investors would obtain the tax benefit for three years. So, we hope the 37,000 investors last year will continue to invest this year too. But due to the limit of ₹ 50,000 in RGESS and as it is open for those who have income of up to ₹ 10 lakh, the scheme is not available for all investors. Even though from April 2014, this amount will be increased to ₹ 12 lakh, this is not incentive enough to invest in RGESS. The tax- exemption that is available for RGESS falls under Section 80 CCG. You can invest a maximum of ₹ 50,000 in RGESS and you'll be eligible for tax exemption on 50 per cent of that amount. So, assuming you invest ₹ 50,000, you will get the exemption benefit on ₹ 25,000. This means that if you are in the 30 per cent tax bracket, you will get an exemption of ₹ 7,500. If you are looking for equity investments, ELSS is a better option as your investment gets a tax deduction (up to ₹ 1 lakh) under Section 80 C. This includes all other investments such as EPF, PPF and re- payment of the principal of a home loan, etc. However, if you haven't covered this investment limit entirely and are looking to save taxes with equity investments, then it may be a better idea to invest in ELSS. The lock- in period for RGESS is the same as that for ELSS, that is, three years. But ELSS funds have more flexibility and more scope for active management. Therefore, over a three year period, returns from ELSS are likely to be better. The whole process of investing in RGESS is cumbersome. There are also grey areas on how to declare RGESS on the part of an employer; whether it is sufficient to show proof of opening a demat account. Last year HDFC, LIC Nomura, DSP Blackrock, Birla Sun Life, IDBI, and UTI had launched RGESS schemes. According to data from Value Research, over 11 months, these schemes have given returns ranging between 8.73 and 11.5 per cent. By contrast, the average return on ELSS funds last year was 13.08 per cent. If you have, however, exhausted your investment limit in ELSS, that is used up the entire ₹ 1 lakh as investment and still have some surplus for investments, going for RGESS as a top up is not a bad idea. ELSS and RGESS are two different products. The tax benefit on RGESS may not enough to take the plunge. But, if you believe in equities and want to invest in them, that is not a bad idea. While the product can be better, it is not bad even in the current form |
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