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IIFL Launches India’s First Passive Tax-Saving Fund

IIFL Mutual Fund has launched India’s first passive tax saver fund, almost six months after the Securities and Exchange Board of India (Sebi) introduced the passive alternative in the Equity Linked Savings Scheme (ELSS) space.

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Being an index fund, the scheme will try to mirror the Nifty 50 and generate returns in line with the movement in the index. As it will be passively managed, investors will be charged lower expenses compared to active ELSS funds.

What Has Been Said:

An offering of this kind was long awaited by the market. Taking exposure to the Nifty companies through a passive ELSS fund is an opportunity for investors to harness the growth potential of equities, reduce tax outgo, lower the cost of investing, and gain diversified exposure,” said Parijat Garg, Fund Manager, IIFL Asset Management Company.

SEBI’s Move:

Till now, tax saving MF investment was only possible through the active route even as Sebi allowed fund houses to launch passive ELSS funds through a circular in May 2022.

Why the passive scheme:

A passive scheme allows investors to simply think of their investment as a split between FDs, PPFs, insurance, and ‘equity’ – without having to worry about deep analysis,” says Parijat Garg, a fund manager at IIFL Asset Management. From a financial planning point of view, a large-cap passive ELSS makes sense, given that large-cap funds have been struggling to outperform their benchmark indices of late. Since these schemes come with a 3-year lock-in, you can invest in such large-cap funds, get the tax benefits as a bonus and expect market returns. For outperformance, you can then focus on a bunch of multi-cap, mid- and small- cap funds.

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