scorecardresearchStop flows into active plans before starting a passive ELSS scheme, Sebi tells AMCs

Stop flows into active plans before starting a passive ELSS scheme, Sebi tells AMCs

Updated: 12 Jan 2023, 11:58 AM IST
TL;DR.
Sebi’s new rule may benefit fund houses which do not have existing products in the category; large fund houses unlikely to make the switch
The ELSS category, under which investors can invest up to 1. 5 lakh and save tax under Section 80C of the Income Tax Act, manages 1.56 lakh crore of assets.

The ELSS category, under which investors can invest up to 1. 5 lakh and save tax under Section 80C of the Income Tax Act, manages 1.56 lakh crore of assets.

The Securities and Exchange Board of India (Sebi) has given a go-ahead to mutual fund houses offering actively-managed Equity Linked Savings Scheme (ELSS) to launch a passive scheme in this category only if they stop accepting fresh money in their existing plans, reported The Economic Times.

This stems from the rationale that a mutual fund cannot offer two similar schemes in the same product category.

“Based on feedback received from stakeholders, it has now been decided that mutual funds that have an existing actively managed open-ended ELSS scheme may launch passively managed open-ended ELSS scheme after stopping fresh inflows/subscriptions to existing open-ended ELSS scheme,” the capital markets regulator said in a letter addressed to the Association of Mutual Funds in India.

Mutual funds are allowed to launch either an actively-managed or a passively-managed ELSS in this category. As a matter of fact, majority of asset management companies (AMCs) already offer actively-managed ELSS.

The ELSS category, under which investors can invest up to 1. 5 lakh and save tax under Section 80C of the Income Tax Act, manages 1.56 lakh crore of assets.

“Since money is locked in for three years, this scheme gives the flexibility to fund managers to take a long-term view and generate alpha. It is unlikely any large scheme would stop subscriptions and convert to passive,” said a product head at a domestic fund house.

First Published: 12 Jan 2023, 11:58 AM IST