This should start from investor education and strict regulatory controls in capital market.

Tax benefits can follow all this The cat is finally out of the bag. The government has approved much awaited Rajiv Gandhi Equity Savings Scheme (RGESS) setting aside all speculations related to the features of the scheme. Two things which come out prominently from the features of thescheme are: 1) it is a scheme intended to provide tax benefit to investors investing directly in equity, mutual funds and exchange traded funds; and 2) it is an attempt to lure investors into stock market and broaden investor base in stocks. The scheme offers tax benefits to investors whose income is up to Rs10 lakh. This means that the scheme is open for investors paying income tax in two tax brackets10% and 20%. For an investment up to Rs50,000, 50% of investment will qualify for tax benefit. For an investor in 10% bracket, the total tax benefit offered by the scheme will be Rs2,500( 50% of Rs50,000 is Rs25,000 and 10% tax benefit on this amount is Rs2,500), while for an investor in 20% tax bracket this benefit will be Rs5,000 which can be availed only once. The tax benefits as such do not sound very attractive but in a country like India where investments are done on the basis of tax considerations, this amount is good enough to catch attention of an investor.

Up to Rs.7000 interest can be deducted under section 80c to calculate the total income of a person. But sometimes when the company is new, the investor can benefit of his holding in equity stock of new firms under section 80cc. Income in the form of dividends in the new undertakings is deductible before paying the tax for the first 5 years of the existence.

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