Even as the exact contours of the newly-proposed Rajiv
Gandhi Equity Savings Scheme (RGESS) are being worked out, another suggestion
has landed in the finance ministry’s lap.
The country’s largest equity bourse has made a
representation to the ministry, suggesting the funds coming from the tax-saving
scheme be invested in the stock market via exchange traded funds (ETFs).
According to sources, the National Stock Exchange (NSE) has
recommended the ETF route for RGESS funds as a diversified and less risky way
to invest in stocks.
Introduced in this year’s Budget, RGESS will give tax
benefit to small investors putting money directly in equities. However, the
idea of encouraging unexperienced retail investors to take direct exposure to
stocks has faced widespread criticism.
Many entities, including the Securities and Exchange Board
of India (Sebi), had suggested the scheme be routed through mutual funds.
However, recent reports suggest the finance ministry isn’t keen on letting
mutual funds operate the scheme.
Experts say encouraging small investors to invest directly
in the market would be very risky. The ETF option is worth considering, they
say.
Investing in ETFs is akin to investing in a basket of
securities. ETFs are gaining popularity globally as an investment vehicle for
taking passive exposure to asset classes, including equities and gold.
However, equity ETFs are yet to gain much currency in India.
Even as there are about 19 such ETFs available in the Indian market, they have
less than Rs 1,200 crore of total assets under management, according to data
from Value Research.
According to experts, if NSE’s proposal is accepted, it will
be a big boost for the country’s ETF market, with several new launches likely.
According to estimates, the RGESS scheme has the potential
to attract up to Rs 50,000 crore of retail inflows every year into the stock
market.
“The current crop of equity ETFs is mostly confined to Nifty
and Sensex. The government can prescribe an ETF on the top 100 stocks or a
public sector undertaking-specific ETF if it’s okay with the idea,” said an ETF
fund manager with a domestic fund house, who did not wish to be identified.
The launch of new ETFs could benefit stock exchanges as well
since they charge a one-time listing fees for letting them use their platform.
According to Sebi, listing of ETFs on stock exchanges is mandatory.
Source: http://www.business-standard.com/india/news/nse-suggests-etf-route-for-rajiv-gandhi-equity-plan/475947/
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