Mutual funds can start passive ELSS after stopping fresh inflows to active ELSS: Sebi

The Securities and Exchange Board of India has allowed mutual fund houses to launch passive ELSSs after stopping fresh inflows/ subscriptions to existing active ELSS schemes. SEBI had allowed mutual funds to launch passive ELSSs in May, 2022. However, the condition was that fund houses can either have an active ELSS or Passive ELSS.

In a circular dated January 10, SEBI said that, “Based on feedback received from the stakeholders, it has now been decided that mutual funds having existing actively managed open ended ELSS scheme may launch passively managed open ended ELSS schemes after stopping fresh inflows/ subscriptions to existing actively managed open ended ELSS scheme.”

The market watchdog also laid down the steps by which fund houses with active ELSSs can proceed to launch a passive ELSS. First, all fresh inflows/ subscriptions to the actively managed ELSS scheme shall be stopped after a written communication about the proposed change along with reasons and benefits of such change. Next, the communication has to be sent to each unitholder and an advertisement is given in at least one English daily newspaper having nationwide circulation as well as in at least one newspaper published in the language of the region where the Head Office of the mutual fund is situated.

Sei has said that the disclosure in the letter should also clearly highlight that the fresh inflows/ subscriptions including Systematic Investment Plans (SIPs) and Systematic Transfer Plans (STPs) for the existing actively managed open-ended ELSS scheme would be stopped from dd/mm/yyyy due to proposed launch of passively managed open ended ELSS scheme.

The unitholders of the actively managed open-ended ELSS scheme, for which fresh inflows/subscriptions would cease, should be able to redeem their units, subject to lock-in, if any.

Sebi said that the mutual fund will be able to launch passively managed open-ended ELSS Scheme subject to filing of the Scheme Information Document with SEBI and receiving a final observation letter. Further, after completion of 3 years from the date of stopping of all inflows in actively managed ELSS Scheme, AMC is required to make suitable disclosures for merger of the two ELSS schemes subject to obtaining necessary approvals from SEBI. The exit option should specifically inform the investor that in case the investor doesn’t exit the scheme, the investments would be managed through passively managed open ended ELSS scheme.