To make the scheme, a few checks and balances will be necessary to begin with. Even if investors are lured into the scheme with better tax incentives, retaining them would require a transparent and simple scheme so that even lay investors know what are the risks of investing in such a scheme. Mutual funds are not risk-free investments. There should be sufficient safeguards to ensure mutual funds and other market intermediaries do not lose sight of the objectives of launching such a scheme, which is to spread the equity cult and give investors opportunities to participate in genuine savings and investment products.

Already a number of mutual funds have launched RGESS products which will be competing for a piece of the cake whose size is not immediately clear. My fear is that in their quest to build a viable asset base, MFs might pay a heavy price to acquire funds. Surely, in the initial year subscriptions will come at prohibitive costs which can affect the returns investors will get in a scheme which is inherently passive in nature. The portfolio would be expected to follow the performance of the benchmark index, in this case the S & P Nifty. The differentiators in this scheme will be the service capability of a fund house, keeping expenses lower (ideally < than one per cent of net assets) and its ability to retain investors with a product model which is regulation-compliant and flexible enough to hedge downside risks with reasonable exposure to index derivatives.