SEBI has allowed mutual funds (MFs) with an actively-managed tax-saving Equity Linked Saving Scheme (ELSS) to launch the same scheme in passive mode provided they stop inflows into the existing scheme.
In order to develop the low-cost passive funds, SEBI allowed MFs to launch a passively managed open-ended ELSS scheme last May. However, the response from MFs was poor.
Procedure to be followed
Following this, SEBI, in a letter to the Association of Mutual Funds in India, laid down the procedure for launching passive ELSS scheme for MFs with the existing active ELSS.
MFs have to stop fresh flow into the existing actively managed ELSS scheme after issuing an advertisement on the proposed change and the benefit of such a move.
All the Systematic Investment Plan and Systematic Transfer Plan into the exisitng actively managed ELSS should also be stopped after a proper notice to the investors, said SEBI.
Subject to the three-year lock-in period, investors in the existing ELSS scheme should be allowed to redeem their units, it added.
Fund houses can file fresh papers with SEBI for launching passive ELSS scheme.
MFs should also inform investors that if they do not exist from actively managed ELSS scheme in three years after stoppage of fresh inflows, their investment will be managed as passive fund, said SEBI.
After three years, MF has to file papers with SEBI informing the closure of actively managed ELSS scheme.
The asset under management of actively managed ELSS scheme has increased 5 per cent to ₹1.55-lakh crore in December from ₹1.47-lakh crore in January. Currently, there are 42 actively managed ELSS schemes.
Investors to benefit
Mahesh Shukla, CEO and Founder, PayMe, said the passive ELSS scheme will benefit investors as it has the shortest lock-in period compared to other tax-efficient products.
Along with the tax benefit, a lower expense ratio is something wherein investors will get direct benefit and save more money besides opening up fresh opportunity for the MF industry to attract more inflows, he said.
Rachit Chawla, CEO, Finway FSC, said besides appreciating the investment, investors can get a tax deduction of up to ₹1.5 lakh per financial year under Section 80C of the IT Act. It gives investors a tax advantage, and the lower expense ratio, and helps them save more money, he added.