SEBI brings clarity on passive ELSS launch process

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.

Like any passive fund, the scheme will also generate returns by copying the underlying index. The fund will be based on any index consisting of shares of top 250 companies in terms of market capitalisation. In the earlier circular it was already stated that a fund house can hold either an active ELSS scheme or a passive ELSS scheme, not both.

In the recent circular, the process for launching passive ELSS scheme by a fund house already having an actively managed ELSS scheme has been highlighted.

Firstly, the fund house should stop all fresh inflows/subscriptions into actively managed ELSS scheme including Systematic Investment Plan (SIP) and Systematic Transfer Plan (STP). It is sent to each unitholder after written communication about the proposed change.

The fund house will also be given the option for investors to redeem their units without exit load, subject to lock-in requirements.

Asset Management Companies are also required to give an advertisement in a newspaper about the closure of the existing actively managed scheme.

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.