ELSS vs RGESS: A Comprehensive Guide

(Last Updated On: April 2, 2017)

Equity Linked Savings Scheme (ELSS)

ELSS

Equity Linked Savings Scheme (ELSS) is an open-ended equity mutual fund plan. Explaining ELSS in simple words would be that it is an investment alternative in the equity market which has its mainstream of the corpus invested in the Equity block in its portfolio. At the outset, ELSS is a category of Mutual Fund, especially recommended to the new-bee investors of the stock market who are alien to the doom and gloom of the stock souk. For investors who can knob a little risk and want to enjoy the dual benefit of Tax saving and capital appreciation should invest in ELSS without any ado.

Rajiv Gandhi Equity Savings Scheme (RGESS)

RGESS

Rajiv Gandhi Equity Savings Scheme (RGESS) is a scheme introduced during the candidature of our sixth PM of India with a core endeavor to persuade small investors to put their money in the equity market and to prop up an “equity culture” in the Indian Economy. RGESS is majorly opted for by the investors who want to save their taxes by entering the domestic capital market. RGESS has made its affiliation with only some of the equities listed in the stock market. So the investor will not be having a vast range of option to choose from if going for this investment type.

Though both the schemes perceive to be much similar to the common man but when it comes to ELSS vs RGESS, there lies a line of difference between the two at the operational level:

Approach Of Investments In Case Of ELSS vs RGESS:

Approach Of Investments

As defined above, in RGESS the funds are as a rule invested directly to the Equity Market (Listed). According to the composition of the scheme, the investments can be done only under the Equity companies which are categorized by the Government. The list includes Maharatna, Navratna, and Miniratna. The basket for investments also includes selected Mutual funds, ETFs and Public Sector IPOs. BSE 100 or CNX 100, public sector shares are also included.

READ  ELSS vs SIP : Difference between ELSS and SIP

Investments in ELSS come with no such canons. It is mostly open-ended diversified equity scheme where the majority of the portfolio is invested in the stock market under the guidelines provided by Securities and Exchange Board of India.

Lock in Period For ELSS vs RGESS:

Lock in

Most of the Indian Investors want to invest in liquid funds and do not mostly prefer to lock their money. So complete facts about the lock-in period are what they consider before investing in any of the Investment schemes. Here are some details regarding lock-in period of both the schemes.
While investing in ELSS, an investor has to compulsorily lock their capital for at least a period of 3 years. And if your financial advisor has recommended you to invest through SIP, you need to learn that every single installment will have an individual 3-year lock-in period. To add to your knowledge, ELSS has the least number of lock in years when compared to other preferred schemes of PPF and NSC.

The grass is greener in the case of RGESS in terms of Lock-in period because you can liquidate your money after 2 years and also trade it. But the trading of RGESS has its own rules. (So don’t forget to take a note of that)

Risk Factors To Be Considered In ELSS vs RGESS:

Risk

Most of the Indian Investor put their money in the market on a speculative basis so risk attached to investment is the next attribute people look while investing.

ELSS has come up with the much positive returns for the Indian Investors in the past years, keeping a fact on a side that ELSS do not provide guaranteed returns on the investments but the returns data reflects that people have made more money over a long period of time. Plus investments are managed by the mutual funds which make it less risky.

READ  ELSS Mutual Fund Charges: All you want to know

For RGESS, the funds are directly invested in the market making it a bit riskier when directly compared to ELSS. RGESS also runs the risk of losing money of the investors in the market similar to the other investors in the market.

Tax Benefits In ELSS vs RGESS:

Tax Benefit

A common man mostly invests because his tax consultant has advised him that it will save tax for him. So knowing the tax benefits of both is a must.


RGESS consents investments totaling up to a ceiling of Rs: 50,000
, of which, 50% can help you with tax savings. But the highest bar of tax that RGESS can save for you is Rs: 5150. Moreover, the scheme is stipulated to endow you with a tax break over Rs. 1 Lakhs.

For ELSS, it’s up to the investor how much benefit he takes from the same. But if your investment crosses the threshold limit of Rs.1.5 lakhs, you will only get a benefit of till Rs.1.5 lakhs which are the maximum allowed u/s 80C. And to put a cherry on the cake, the returns that you will earn from ELSS will be tax-free after the completion of lock-in period of 3 years. But put a note that if SIP scheme has been opted by you, every installment will have an individual 3 years lock-in period.

Minimum Investments Criterion In ELSS vs RGESS:

Minimum Investment

Minimum Investment is also another criterion that Indian Investors consider because they don’t want to bump into too much of risk in the initial stages.

When both the investment plans are put side by side and compared in terms of which should be chosen on the basis of the minimum investment, both plans will seem appropriate. The reason of saying that will be that there is no minimum criterion set for investing in both the schemes and you can start with as low as Rs.500 to measure the depth of the pool.

READ  Understanding ELSS lock in period for various schemes

Conclusion Of ELSS vs RGESS:

  ELSS RGESS
Approach Of Investments Wide Range of options available for investments. Investment Options gets limited.
Lock in Period Lock-In Period of 3 years. Lock-In Period of 2 years.
Risk Factors Less Risky as funds are invested through Mutual Fund More Risky as funds are invested directly in the Equity
Tax Benefits Tax Benefit can be taken up to Rs.1,50,000 max. Tax Benefit can be taken up to Rs. 50,000 max.

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