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THE Rajiv Gandhi Equity Savings Scheme (RGESS) has been launched and first-time investors can ensure that they get an additional tax deduction for investment into equities through this route. One of the benefits for investors is that mutual funds options are also available here for making investment.

While undertaking this investment process, they need to be alert about the manner in which they will go about each step along the way because there are several conditions that they might find to be different compared with a normal mutual fund investment.

Select mutual funds: Just like the tax benefit that is available for equity linked savings scheme (ELSS), when it comes to RGESS, not all schemes will be eligible for investment. There are specific funds that are earmarked for this purpose and are designated to be funds that allow for tax deduction.

So, as far as investors are concerned, they need to be clear about the manner in which they will start with their investment. This is by checking the details of a fund or scheme to see what kind of choice is actually available.

Equity investing: Investors will also have to ensure that they are selecting the right kind of fund for the purpose of this benefit. With ELSS funds also present, what is important for individuals is to distinguish between the benefits that they are claiming, because it should not be that they end up investing in an ELSS fund instead of an RGESS fund.

This confusion is likely considering the fact that both of them will be sold as tax benefit schemes and, hence, this is something that investors have to clearly watch out for.

Other conditions: There are various other conditions that need to be fulfilled by investors to actually become eligible for RGESS investment. First is that they need to be first-time investors, wherein, they should not have already invested before through a demat account and, secondly, their income has to be less than Rs 10 lakh per annum.

Further, the required lock in of the investment would also need to be maintained, which will put a restriction in the manner of use of the funds.

Loss of capital: One of the most valuable details for investors is that this will be their first investment into the equity market. Unlike other tax deduction investments where there is a fixed rate of return and a tax benefit on top of it, the situation here will be different. A lot depends on the market conditions that an investor will face during the period of investment. This makes it very crucial for investors to be mentally prepared for situations like a capital loss that they can face for a period of time.

Investors need to ensure that the final position is in their consideration when the investment is being made because this is what will determine the amount that they actually take home at the end of the day. A shock in terms of a loss could end up with investors losing confidence in the equity route and, hence, they would need to be prepared for the same right from the very beginning.