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Amfi lobbies with finance ministry for mandate to run RGES in place of ELSS
April, 19th 2012

Association of Mutual Funds (Amfi) in India is lobbying with the finance ministry to secure an exclusive mandate to implement the Rajiv Gandhi Equity Scheme (RGES), a tax-efficient investment plan for retail investors that was introduced in the Union Budget.

A permission to allow the domestic mutual funds to handle the proposed equity scheme will help the industry replace its existing tax-saver product - equity-linked savings scheme - which will lose its tax-saver status under the Direct Taxes Code (TDS) regime.

The mutual fund industry body, which represents 44 Indian asset management companies, is making the pitch for executing the RGES as it caters to small retail investors who are investing in the markets for the first time.

"Amfi has written to both the finance secretary and Sebi chairman requesting them to route RGES through mutual funds. It is under consideration of the government... we also have Sebi's backing in this regard. Sebi also believes, the best way for first-time investors to invest in stock markets is through mutual funds," said Amfi chief executive HN Sinor.

The finance minister, in the Budget speech, had said that RGES was a tax-efficient scheme for small 'first-time investors' who desired direct investment in stock markets. Amfi officials are of the view that 'first-time investors' should not be allowed to invest directly in stock markets.

"Making direct stock investments is fraught with risk for first-time investors; mutual funds will be a better vehicle for them to take exposure to stock markets," said Sinor.

RGES, which is aimed at increasing retail participation in stock markets, offers an income tax deduction of 50% for investments up to 50,000 by new retail investors whose annual income is below 10 lakh. The government, as per reports, is considering to reduce the lock-in period in RGES from three years to one. 

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"The government wrote to us asking why we needed RGES when we had ELSS, serving the same tax-benefit purpose. We've replied saying that ELSS may lose its tax-saver status once DTC is put in place. Also, ELSS is losing its sheen... so it's better that we substitute it (ELSS) with a product which can be exclusively for mutual funds," Sinor said. 

The demand for RGES comes at a time when the mutual fund industry is passing through its roughest patches. The industry's month-end assets under management plunged by over 13% to 5.87 lakh crore in March 2012, the lowest AUM since June 2009, according to Crisil. 
 
 
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