Latest SEBI round introduces a brand new passive ELSS scheme class

The securities market regulator, SEBI got here out with a round on May 23 on ‘Development of Passive Funds’ masking a gamut of points associated to ETFs (trade traded funds) and index funds. Notably, the round has launched a brand new class of mutual fund schemes – Passive ELSS (fairness linked financial savings scheme). 

Passive ELSS 

As per the most recent round, passive ELSS scheme might be primarily based on one of many indices comprising fairness shares from high 250 corporations by way of market capitalization. The final time SEBI undertook a serious overhaul of mutual schemes was in October 2017 whereby the regulator standardised scheme classes and the traits of every class to being uniformity and standardisation within the mutual fund area. Based on this round, ELSS was one class of schemes underneath ‘equity schemes. Following the latest change, which comes into effect from July 1, this will be termed as ‘Active ELSS scheme’.  

In addition, ‘Passive ELSS scheme’ might be launched underneath the heading of ‘other schemes’. However, a mutual fund AMC can launch solely one of many two and never each. ELSS schemes are open-ended equity-linked schemes which have a 3-year lock-in and are take pleasure in tax profit underneath part 80C of the Income Tax Act. This permits a person a tax deduction of as much as Rs. 1.5 lakh each monetary 12 months for investments made within the scheme, amongst different eligible funding avenues lined underneath the part.  

Greater readability  

To serve the aim of better readability for traders, the round additionally specifies that the nomenclature for ETFs / index funds ought to embody the title of the underlying index or good that they monitor. Also, as soon as an ETF will get listed on the exchanges, the scrip code of such ETFs should be disclosed within the nomenclature in any respect locations.  

Norms for debt ETFs 

Among a number of norms which have been specified, AMCs have been tasked with making certain that in case of debt ETFs/ index funds, the related index should not have greater than 25% weight to a selected group (excluding securities issued by PSUs, public monetary establishments (PFIs) and public sector banks (PSBs). Also, the index mustn’t have greater than 25% weight to a selected sector (excluding G-secs, T-bills, SDLs and AAA- rated securities issued by PSUs, PFIs and PSBs). Thematic or sectoral indices have, nonetheless, been excluded from this provision. The software of those provision ought to assist cap focus threat in debt ETFs/ index funds. 

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