SEBI allows MFs to launch passive ELSS, debt-based ETF programs; Zee Business decodes what this means for investors

The Securities and Exchanges Board of India (SEBI) has allowed mutual funds (MFs) to launch passive ELSS programs as well as debt-based ETFs and index funds. The market regulator has published a circular on this subject. Brajesh Kumar, Associate Editor of Zee Business, explains what this means for investors.

ELSS is Equity Linked Savings Schemes and ETFs are Exchange Traded Funds.

According to Kumar, investors would get tax saving options through passive ELSS with approved mutual fund schemes. To apply for these schemes, one must know the criteria.

MFs must have an ELSS system on an active or passive basis and ELSS should only be based on an index of the top 250 companies by market capitalization, the SEBI circular reads.

ETFs on debt and index-based funds could be corporate debt, government security, treasuries, SDLs and others, Kumar said citing the circular.

In addition, the debt index/ETF exposure limit will also be set and the maximum exposure in any given group will be limited to 25%, he added.

He added that at least 2 market makers are required to maintain liquidity and their incentive will be within the TER (Total Expense Ratio) of the program.

Kumar, citing the SEBI circular, said the size of NFOs (new fund offerings) has been reduced from Rs 10 to 5 crore and only trades above Rs 25 crore will be conducted directly by the MF company.

Highlighting the advantages of passive systems, Kumar said the biggest advantages are that they possess transparency, diversification and they are also inexpensive.

Zee Business Editor Anil Singhvi called it a great development from the market regulator, believing the move will benefit MF houses.

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