In the world of financial exuberance, there are galore of investment avenues for you to select from. However, it is imperative that you exercise caution and act responsibly while selecting the right investment avenue for investing your hard earned money. But when these very options are made complicated or there exists lack of clarity as to how a particular investment avenue will function, the task of investing becomes a lot more difficult.

Similar is the case with the newly introduced (though not launched) Rajiv Gandhi Equity Savings Scheme (RGESS). With the Finance Ministry keeping mum on the functionality of the RGESS, there have been different options being spelt-out by different entity’s for the RGESS.

Let us see the options spelt-out by different entities through which the RGESS can be routed.

One of the options suggested by the National Stock Exchange (NSE) is to route the funds coming from the tax-saving scheme - RGESS, to the stock market via Exchange Traded Funds (ETFs). The National Stock Exchange (NSE) has recommended the ETF route for RGESS funds as a diversified and less risky way to invest in stocks.

The other option brought out by the capital market regulator - Securities and Exchange Board of India (SEBI) was to route the funds coming from RGESS through mutual funds via the ELSS route. SEBI considers this option apt for the first time investors in the Indian the equity markets as mutual funds are a safer option than direct investing in stocks.

Our view:

Investors should wait and watch how things unfold for RGESS. We believe, investing directly in stocks for first time investors entails a lot of risk as compared to adopting the indirect route to equity investing, i.e., mutual funds. Moreover, mutual fund industry is one of the most, well-regulated industries in the financial markets. In our view the Finance Ministry should soon roll out the functionality of RGESS and infuse clarity.

As far as the options through which RGESS funds can be routed are concerned, we believe that though the ETF option seems to be safe and secure on the face of it, there exists an inherent problem of liquidity under this option. For instance, under the ETF option since the RGESS is allowed only to first time investors in the equity markets, the investors under this option may face difficulty in redeeming their funds once the lock-in period gets over. This is because, since ETFs are traded on the exchange there should exist a buyer for every single seller of the RGESS. Furthermore, the buyer needs to be a first time investor in the equity markets. This makes the ETF option highly illiquid unless an exit route is created.

On the other hand ELSS route seems fine, wherein the mutual funds will operate the RGESS like any other tax-saving scheme. However, the investors need to select only those fund houses whose investment processes and systems are well laid out in order to benefit from the scheme from a long term point of view.

Would you prefer the ETF for your investments in RGESS? Let us know your comments or post them on our our Facebook page / Twitter page.

 

Disclaimer: This newsletter is for Private Circulation only and not for sale, is only for information purposes and Quantum Information Services Pvt Limited (PersonalFN) is not providing any professional/investment advice through it and, does not constitute or is not intended to constitute an offer to buy or sell, or a solicitation to an offer to buy or sell financial products, units or securities. PersonalFN disclaims warranty of any kind, whether express or implied, as to any matter/content contained in this newsletter, including without limitation the implied warranties of merchantability and fitness for a particular purpose. PersonalFN and its subsidiaries / affiliates / sponsors / trustee or their officers, employees, personnel, directors will not be responsible for any direct/indirect loss or liability incurred by the user as a consequence of his or any other person on his behalf taking any investment decisions based on the contents of this newsletter. Use of this newsletter is at the user's own risk. The user must make his own investment decisions based on his specific investment objective and financial position and using such independent advisors as he believes necessary. PersonalFN does not warrant completeness or accuracy of any information published in this newsletter. All intellectual property rights emerging from this newsletter are and shall remain with PersonalFN. This newsletter is for your personal use and you shall not resell, copy, or redistribute this newsletter, or use it for any commercial purpose. The user accepts the terms of use on this web site.

Add Comments