Sebi allows passive ELSS, new debt ETFs

Mumbai: Sebi on Monday allowed mutual fund houses to launch passive equity-linked savings schemes (ELSS). The markets regulator also said that fund houses can offer exchange-traded funds (ETFs), index funds for debt securities. Passive ELSS will give retail investors one more avenue to save on taxes by parking funds in government-approved MFs. Actively managed ELSS are popular among retail investors for saving taxes. A large number of these investors put money in these funds using the systematic investment plans (SIPs). On Monday, Sebi said that a fund house could choose to launch either an actively managed ELSS or a passively managed one. “The passive ELSS scheme shall be based on one of the indices comprising equity shares from top 250 companies in terms of market capitalisation,” it said.In the other segment, debt ETFs and index funds could be based on indices comprising corporate debt securities (corporate debt indices), government securities (G-secs), T-bills and/or state development loans (SDLs), that is G-sec indices, or a combination of corporate debt securities and G-sec/T-bills/SDLs — hybrid debt indices.It also said that fund houses would have to appoint at least two market makers “who are members of the stock exchanges, for ETFs to provide continuous liquidity on the stock exchange platform”. It said, “Market makers shall transact with (the fund house) only in multiples of creation unit size.” Sebi also said that fund houses “shall facilitate in-kind creation and redemption of units of ETFs (including debt ETFs) by market makers on a best effort basis”.Globally, market makers are appointed to create liquidity in a newly introduced asset on exchange platforms and, once a large number of investors trade and invest in such assets, the utility of market makers diminishes.