Sebi asks govt to route Rajiv Gandhi Equity Scheme through MF

To minimize risk associated with direct stock investment for new investors, market regulator Sebi has asked the government to route tax-saving Rajiv Gandhi Equity Savings Scheme through MF.

Chairman of Securities and Exchange Board of India (Sebi) U K Sinha today said the regulator has submitted a proposal in this regard to the Finance Ministry.

"The thinking in Sebi is that first time investors may not have adequate information about the stock market...they should enter the market through institutional investor," he said.

"...is it right to expose an uninformed investor directly into the equity market or provide him access through Mutual Fund (MF)," he said.

He was responding to queries on RESS announced by Finance Minister Pranab Mukherjee in his Budget speech.

The minister had announced 50 per cent tax deduction to retail investors with annual income of less than Rs 10 lakh for investment up to Rs 50,000 in a year with a lock-in period of three years under the scheme.

A retail investor can avail the scheme only once in a life time. This is the first-ever tax benefit scheme announced by the government to encourage retail investors participation in the equity market. By offering this scheme, the government aims at channelising household savings into stock markets.

Sinha also expressed concerned that penetration of MF industry in the retail sector is not improving.

However, he said "we are happy in one way that compared to 2010-11, in (2011-12) net inflow in equity schemes of MF is much higher".

In 2010-11, net inflow in equity schemes of MF had declined by 13,000 crore, but in the following year it is positive by few hundred crores, he said adding the number of folios have declined.

Sinha said Sebi has set up a mechanism and was in talks with a "group of people" on how to increase the penetration of the industry.

On the Equity Linked Saving Schemes (ELSS), Sinha said there would be clarity once the Direct Taxes Code (DTC) Bill is finalised.

Source: http://articles.economictimes.indiatimes.com/2012-05-19/news/31778176_1_mutual-fund-retail-investors-mf