The Securities and Exchange Board of India (Sebi) has written to the Association of Mutual Funds in India (AMFI) with respect to a circular on development of passive funds, sources informed CNBC-TV18. This circular came in May 2022, which was basically an update on passive Equity Linked Saving Scheme (ELSS) funds.

The capital market regulator has now written to the AMFI and allowed them to actually issue passively ELSS funds as well, along with active open-ended ELSS funds. Now, the launch of passive ELSS funds in this case can only be done after stopping any further inflows into active open-ended ELSS.

Apart from that, these two schemes have to be merged after three years of closing active ELSS scheme subscriptions as well.

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Earlier as per SEBI rules, it was not allowed to both passive and active ELSS funds to function together. However, the new circular will allow them to function together provided they do not have any more subscriptions in the active scheme as well.

SEBI earlier allowed mutual funds to launch passive ELSS schemes and as per SEBI classification rules, any mutual fund can have only one scheme per category as well. Now, this paves way for more funds coming into passive ELSS funds provided there are no other flows coming into active ELSS funds.

SEBI had actively received feedback from stakeholders after which they have made this change in terms of passive flows and this of course, paves more way in terms of flows into open-ended ELSS schemes.

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(Edited by : Anshul)