The move by capital markets regulator SEBI to allow mutual funds to introduce passively managed equity-linked savings schemes (ELSS) will allow a cost-effective tax-saving option for individual investors. ELSS funds are basically tax saving equity mutual funds, wherein most of the funds are invested in stocks. They come with a lock-in period of 3 years. Investment up to u/s 80C 1.5 lakh in a financial year in eligible instruments (including ELSS) are exempt from tax.
SEBI in its May 23 circular said mutual funds can launch either an actively managed ELSS scheme or a passively managed scheme – but not in both the categories.
Currently, all ELSS mutual funds Actively managed by a fund manager. Once the passive ELSS funds are launched, the allocation in them will be based on an index of equity shares of the top 250 companies in terms of market capitalisation.
Here are five things to know about the new ELSS fund rules:
1) As per the SEBI circular, which will be effective from July 1, the passive ELSS scheme should be based on one of the indices comprising equity shares of top 250 companies in terms of market capitalisation.
2) This means, passive ELSS funds can be benchmarked against indices like Nifty 50, Nifty Next 50, Nifty 100.
3) For the sake of clarity to investors, the name of the index fund shall include the name of the underlying index in the name of the ELSS scheme, SEBI said.
5) Piyush Gupta, Director of Fund Research, Crisil Ltd. said that the advent of passively managed ELSS offers a cost- and tax-saving option for individual investors, but how fund houses approach it will have to be seen as the regulator has decided Have asked them. There are active and passive forms to choose from, and most already have an active plan in their offerings.
6) For example, Axis Long Term Equity Fund, an ELSS fund, charges an expense weight of 1.68% on its regular schemes. On the other hand, Axis Nifty 50 Index Fund – Regular Plan – an index fund based on Nifty 50 – charges 0.4% as expense ratio.
7) “The move to allow mutual fund houses to launch equity-linked savings schemes as passively managed funds is a positive step in scaling up the indexing proposition for retail investors. But we need to see that That is how the fund house will deal with any option option.Actively Managed ELSS Funds and Passively Managed ELSS Funds but maybe new fund houses who do not have ELSS funds can grab this opportunity, says Tarun Birani, Founder and CEO, TBNG Capital Advisors.
8) As per the latest AMFI data, ELSS was in the category As of April 2022, there were assets of 1.5 lakh crore and 39 schemes in different fund houses.