Mutual funds with active ELSS were allowed to launch passive schemes. What does this mean for investors

 

• Mutual funds can launch passive ELSS after the existing actively managed ELSS funds are closed for subscription

In a recent circular, the Securities and Exchange Board of India (SEBI) said that mutual funds (MFs) in India can launch passive equity-linked savings schemes (ELSS), but with the closure of existing actively managed ELSS funds for subscription. Only after being

"SEBI's move to allow mutual funds to launch passive ELSS schemes along with active ELSS is a welcome move, which will be beneficial to investors at large. Also, investors can avail tax deduction up to ₹1.5 lakh per financial year under section 80C." Can also avail tax deduction of up to Rs.1000/- per IT Act. Due to which passive ELSS are much cheaper than active ones with lower expense ratio. Along with tax benefits, a lower expense ratio is something that investors will directly benefit from, And they will be able to save more money. It also opens up opportunities for greater flow of funds to the mutual fund industry and greater savings from a consumer perspective," said Mahesh Shukla, CEO and founder of PayMe.

The passive ELSS category, which would also be eligible for tax benefits, was introduced by the regulator in May 2022 through a circular titled - Development of Passive Funds.

After completion of three years from the date of stoppage of inflows in the actively managed ELSS scheme, it will be merged with the passively managed ELSS scheme and the investments will be managed through the latter.

Investments under ELSS scheme have a lock-in period of three years, which is the lowest lock-in period as compared to other tax-efficient products. Rachit Chawla, CEO, Finway FSC said, "As always, SEBI has again taken a great step which has been welcomed by the general public at large, mainly because it is a win-win step for investors."