Home / Mutual Funds / Mutual funds with active ELSS allowed to launch passive schemes. What it means for investors

Securities and Exchange Board of India (Sebi) said in a recent circular that mutual funds (MFs) in India can launch passive equity-linked savings scheme (ELSS) but only after the closure of the existing actively-managed ELSS fund for subscription.

"The SEBI move to allow mutual funds with active ELSS to launch passive ELSS schemes is a welcome move, which will be massively beneficial for investors. Furthermore, investors can also get a tax deduction of up to 1.5 lakh per financial year under Section 80C of the IT Act. Thereby, the passive ELSS are much cheaper with a lower expense ratio as compared to the active ones. Along with the tax benefit, a lower expense ratio is something wherein investors will get directly benefited, and they will be able to save more money. This also opens up opportunities for the mutual fund industry to have more inflows of funds and more savings from a consumer standpoint," said Mahesh Shukla CEO & Founder PayMe.

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

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

The investments under the ELSS scheme have a three-year lock-in period, which is the shortest lock-in period as compared to other tax-efficient products. “As always, the SEBI has again made a great move which is massively welcomed by the general public at large, primarily because it is a win-win move for the investors," said Rachit Chawla, CEO Finway FSC.

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