Sebi permits mutual funds to provide passively managed equity-linked savings schemes

The capital markets regulator Sebi  has approved the launch of passively managed Equity-Linked Savings (ELSS)Schemes by mutual funds.

According to the regulator, mutual funds can have either an actively managed or a passively managed ELSS programme, but not both. Sebi said,  the passive ELSS scheme shall be based on one of the indexes that include equity shares from the top 250 companies in terms of market capitalization. The change will allow new fund companies that specialise in passive strategies to launch an ELSS fund that is passively managed.

Sebi has also established a framework for managing passive funds, such as Exchange Traded Funds (ETFs) and Index Funds, in response to the increased popularity of such funds as a retail investing product.The  new structure will take effect on July 1 and will apply to all current ETFs and index funds, it said.

The framework includes criteria for debt ETFs and index funds, as well as the regulator's constitution, ETF market making structure, investor education and awareness charges, disclosure guidelines, and other elements.

"Given the emergence of passive funds, such as ETFs and index funds, as an investment product for retail investors around the world, and the various benefits of passive investing, such as transparency, diversification, and lower costs," Sebi said, a need to review the regulatory framework for passive funds in India was felt.

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