Find out the procedure laid down by SEBI for the Association of Mutual Funds to launch a passive ELSS!

The Securities and Exchange Board of India (Sebi) has authorized mutual fund companies that provide actively managed equity linked savings schemes (ELSS) access to introduce a passive policy in this category, but only when they avoid taking capital expenditures in their existing plans.


The authority launched the passive ELSS category in May 2022 in a document titled "Development of Passive Funds," which will additionally qualify for tax advantages. In this category, mutual funds are eligible to introduce both actively managed and passively managed ELSSs, but one can have a passively managed scheme only after closing the existing actively managed subscription. 

Read more to learn about how you can you have a passively managed equity savings scheme!

Also read: A beginner’s guide to investing in passive funds 

Equity Linked Savings Scheme (ELSS): A passive savings scheme 

The Securities and Exchange Board of India (SEBI) allows mutual funds that offer the actively managed Equity Linked Savings Scheme (ELSS), a tax-savings product, to launch passive schemes in this sector, but only if companies stop accepting new investments in their immediate plans. This is due to the fact that a mutual fund is incapable of offering two comparable schemes within the same market sector.

The financial markets control board stated in a memorandum to the Association of Mutual Funds in India (AMFI) based on the responses of stakeholders that "it has now been made the decision that mutual funds that operate a current actively managed open-ended ELSS scheme could launch a passively managed open-ended ELSS scheme after stopping new cash flows to established open-ended ELSS schemes." 

The process to be followed includes the following steps: 

  • SEBI described the steps for mutual funds with active ELSS to establish passive ELSS schemes in a letter to the Association of Mutual Funds in India.
  • Mutual funds are required to suspend capital spending within the already actively managed ELSS program after printing an advertisement explaining the change initiatives and their benefits.
  • Investors in the current ELSS program must be able to reclaim their units, subjected to the three-year lock-in term.
  • Additionally, investment management firms are mandated to place an advertisement in a newspaper announcing the termination of the current actively managed scheme.
  • Investment firms may submit new documentation to SEBI for the introduction of passive ELSS schemes.
  • According to SEBI, mutual funds must also tell customers that their investments will indeed be maintained as passive funds if they choose not to participate in an actively managed ELSS scheme three years after the end of new intakes.
  • A three-year notice of the suspension of an actively managed ELSS scheme must always be filed with SEBI by the mutual fund company.

Also read: Active or passive investment: What is your choice? 

Final words

The SEBI-approved passively managed equity linked savings scheme (ELSS) is being implemented effectively by mutual fund companies, with an annual increase of approximately 5%. 


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