SEBI Allows Mutual Funds To Launch Passive ELSS Funds

 Equity-linked Savings Schemes (ELSS) have long been a popular tax-saving tool, and now the capital market regulator is enabling mutual fund providers to create passively managed ELSS.

Mutual funds can start passive ELSS schemes based on one of the indexes encompassing equity shares from the top 250 businesses in terms of market capitalization, according to a circular released by the Securities and Exchange Board of India (Sebi) earlier this week.

As a result, the ELSS scheme might be based on a wide range of indexes, including the Nifty 50, BSE Sensex, Nifty 100, Nifty 200, and Nifty Large Midcap 250. This will enable fund houses to provide a diverse range of options to clients, including exposure to large and midcap equities.

According to the Categorization and Rationalization of Mutual Fund Schemes guidelines, the fund could be created under the 'Other Schemes' category. Mutual funds, on the other hand, could offer either an actively managed or a passively managed ELSS.

A passively managed fund is one that attempts to mirror the composition of a specific stock exchange without the requirement for a fund manager to actively manage the fund. This reduces the expense of active management, lowering the fund's cost to investors.

Because most existing fund houses already have an actively managed ELSS, the requirement that a fund house offer either an actively managed or a passively managed fund could delay the debut of passively managed tax saving funds.