Capital markets regulator SEBI on Monday allowed mutual funds to launch passively-managed equity-linked savings schemes (ELSS).

However, the regulator said that mutual funds could have either an actively-managed ELSS scheme or a passively-managed one but not in both categories.

The passive ELSS scheme should be based on one of the indices comprising equity shares from top-250 companies in terms of market capitalisation, the SEBI said in a circular.

The move will allow new fund houses that are especially focusing on passive schemes to float a passively-managed ELSS fund.

Besides, SEBI has put in place a framework for managing passive funds – exchange-traded funds (ETFs) and index funds – amid growing popularity of such funds as an investment product for retail investors.

The new framework would come into effect from July 1 and would be applicable to all existing ETFs and index funds, the SEBI said.

Under the framework, the regulator has laid down guidelines for debt ETFs and index funds, its constitution, market-making framework for ETFs, investor education and awareness charges, disclosure guidelines and other provisions.

“Considering the emergence of passive funds – ETFs and index funds as an investment product for retail investors globally and various advantages of passive investing like transparency, diversification, lower cost..., a need was felt to review the regulatory framework for passive funds in India,” the markets regulator said.