Saturday, January 19, 2013

80CCG, Rajiv Gandhi Equity Savings Scheme, 2012


·         Introduction
Finance Act 2012 has come up with a new section 80CCG, to be made applicable from F.Y. 2012-13 onwards. The Scheme not only encourages the flow of savings and improves the depth of domestic capital markets, but also aims to promote an ‘equity culture’ in India. This is also expected to widen the retail investor base in the Indian securities market.

·         Salient features of the Scheme are as under:
1.     Eligible Investors: Scheme is open to new retail investors, identified on the basis of their PAN numbers. This includes those who have opened the Demat Account but have not made any transaction in equity and /or in derivatives till the date of notification of this Scheme and all those account holders other than the first account holder who wish to open a fresh account.
2.     Max. Amount: Deduction is restricted to 50% of eligible investment subject to upper limit of Rs. 25000/- for deduction. That means limit for investment is fixed at Rs. 50,000/-
3.     Eligible Securities: Under the Scheme, those stocks listed under the BSE 100 or CNX 100, or those of public sector undertakings which are Navratnas, Maharatnas and Miniratnas would be eligible. Follow-on Public Offers (FPOs) of the above companies would also be eligible under the Scheme. IPOs of PSUs, which are getting listed in the relevant financial year and whose annual turnover is not less than Rs. 4000 Crore for each of the immediate past three years, would also be eligible.
In addition, considering the requests from various stakeholders, Exchange Traded Funds (ETFs) and Mutual Funds (MFs) that have RGESS eligible securities as their underlying and are listed and traded in the stock exchanges and settled through a depository mechanism have also been brought under the scheme.
4.     Lock In Period: The total lock-in period for investments under the Scheme would be three years including an initial blanket lock-in period of one year, commencing from the date of last purchase of securities under the scheme. The initial first year is known as Fixed Lock-in Period, in which no trading of securities is allowed. After the first year, investors would be allowed to trade in the securities in furtherance of the goal of promoting an equity culture and as a provision to protect them from adverse market movements or stock specific risks as well as to give them avenues to realize profits.
5.     Valuation: For the purpose of valuation of shares, the closing price as on the previous day of the date of trading will be considered so that new investors are certain about their debits and credits into the account.
6.     The deduction under Section 80CCG will be allowed in addition to the 1 lakh limit allowed under section 80CCE covering the sections 80C, 80CCC and 80CCD. Moreover, it will be allowed to all the Individual Assessees irrespective of his/her source of income. In short, a salaried person can also avail the benefit of this scheme.
7.     The deduction under this section is available if following conditions are satisfied:
a.     The assessee is a resident individual (may be ordinarily resident or not ordinarily resident)
b.    His gross total income does not exceed Rs. 10 lakhs;
c.     He has acquired listed shares in accordance with a notified scheme;
d.    The assessee is a new retail investor as specified in the above notified scheme;
e.     The investor is locked-in for a period of 3 years from the date of acquisition in accordance with the above scheme;
f.     The assessee satisfies any other condition as may be prescribed.
8.     Withdrawal of deduction – If the assessee, after claiming the aforesaid deduction, fails to satisfy the above conditions, the deduction originally allowed shall be deemed to be the income of the assessee of the year in which default is committed.
9.     Illustration:
Mr. X, a businessman who has a gross total income of Rs. 17 lakhs, invested in the eligible securities, an amount equal to Rs. 50,000. The total deduction allowed to him under section 80CCG shall be NIL, since his gross total income exceeds Rs. 10 lakhs.
Mr. Y, a salaried person, having a gross total income of Rs. 9 lakhs, invested in notified shares an amount of Rs. 60,000. The total deduction available to him shall be 50% of Rs. 50,000 (maximum limit), i.e. Rs. 25,000 only.

·         Differences with ELSS
Equity Linked Savings Scheme (ELSS) and RGESS are entirely different schemes: They pertain to different asset classes with ELSS offering passive investment avenues. ELSS is meant for indirect participation in the stock market, whereas RGESS aims at encouraging direct participation in the stock market. The operational differences are given below:

Operational differences
ELSS
RGESS
Investments are in mutual funds which invests mostly in equity (80-100% in equity)
Investments are to be made directly in selected equity or into a combination of equity including mutual funds, Exchange Traded Funds, and select IPOs of PSUs
100% deduction (upto Rs. 1,00,000) is allowed under ELSS
Only 50% deduction (upto max. of Rs. 25,000) is allowed under RGESS.
The ELSS benefit is coming under Section 80-C of the IT Act which has an aggregate limit of Rs. 1,00,000 for all such eligible instruments like LIC policy, PPF etc
Separate investment limit exclusively for RGESS over and above the Section 80 C Limit
Lock-in period of 3 years
Lock-in of 3-years. However, trading allowed after one-year subject to conditions.
Since investments are in mutual funds, it is perceived to be less risky
Since investments are in equity / risk / ownership capital, risk is perceived to be higher

Wednesday, February 16, 2011

Demat Account

Demat refers to a Dematerialized account. If you want to buy or sell stocks you need to open a Demat account. It is just as opening an account with a bank. To open your Demat account you have to approach the DPs (Depository Participant). Demat account will help you to buy and sell shares without endless paperwork and delay. Practically all the trades have to be settled in Dematerialized form. So a Demat account is a must for trading and investing. Demat Account is just Like a bank account where actual money is replaced by shares,
For Example: Your portfolio of shares are 200 of Wipro, 100 of Infosys, 50 of HCL, All these will show in your Demat  account, you don’t want to show any physical certificates that you hold that shares. If you buy or sell the shares all are held electronically in your account. They are all held electronically in your account. As you buy and sell the shares, they will be automatically adjusted in your account. It is just like a bank passbook or statement, the DP will provide you with periodic statements of holdings and transactions.

For opening a Demat Account, You should approach a DP and fill the Demat account opening form. NSDL and CDSL Web sites will list the approved DPs. Then you will receive an account number and a DP ID number for your account. Quote both the numbers in all future correspondence with your DPs.

Benefits of Demat account
  • A safe and convenient way to hold securities
  • Immediate transfer of securities
  • No stamp duty on transfer of securities
  • Elimination of risks associated with physical certificates such as bad delivery, fake securities, delays, thefts etc.
  • Reduction in paperwork involved in transfer of securities
  • Reduction in transaction cost
  • No odd lot problem, even one share can be sold;
  • Nomination facility
  • Change in address recorded with DP gets registered with all companies in which investor holds securities electronically eliminating the need to correspond with each of them separately
  • Transmission of securities is done by DP eliminating correspondence with companies
  • Automatic credit into Demat account of shares, arising out of bonus/ split/ consolidation/ merger etc.
  • Holding investments in equity and debt instruments in a single account.
Disadvantage of Demat account
  • Securities may become uncontrolled in case of Dematerialized securities.
  • Incumbent upon the capital market regulator to keep a close watch on the trading
  • Stock-brokers, needs to be supervised as they have the capability of manipulating the market
  • Various regulatory frameworks have to be complete to, including the Depositories Act, Regulations and the various By-Laws of various depositories.
  • Additionally, agreements are entered at various levels in the process of Dematerialization. 
Fees Structure
There are four major charges usually levied on a Demat account: 
  • Account opening fee
  • Annual maintenance fee
  • Custodian fee and
  • Transaction fee.(All the charges vary from DP to DP)  
Account opening Fee
Private Banks, such as ICICI Bank, HDFC bank does not have any account opening charge. Depending on the DP, there may or may not be an opening account fee.

Annual maintenance fee
This is also called as folio maintenance charges, and is generally levied in advance

Custodian Fee
This will be charged monthly depends on the number of securities (international securities identification numbers – ISIN) held in the account. Generally it is between Rs. 0.5 to Rs. 1 per ISIN per month.

Transaction fee
The transaction fee is charged for crediting/debiting stocks to and from the account on a monthly basis. While some DPs, charge a flat fee per transaction, and some DPs peg the fee to transaction value, subject to a minimum amount. The fee also differs based on the kind of transaction (buying or selling). Some DPs charge only for debiting the securities while others charge for both. DPs will charge if your instruction to buy/sell fails or is rejected. Service tax is also charged by the DPs. DP also charges a fee for converting the shares from the physical to the electronic form or vice-versa