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Allowing mutual funds to launch passively managed Equity-Linked Savings Schemes (ELSS) is a "welcome step" to the overall growth of passive funds, said Mahavir Kaswa, Head of Research, Passive Funds at Motilal Oswal AMC.

Indian capital markets regulator SEBI on Monday allowed mutual funds to launch passively managed ELSS, though with a caveat that mutual funds can have either an actively-managed ELSS scheme or a passively-managed one, but not in both categories.

"While we are still evaluating the implication of the circular; however, we believe the 'Circular on Development of Passive Funds' by SEBI is a big welcome step to the overall growth of passive funds," Kaswa said in a note.

The norms on debt ETF or Index Fund will certainly help broaden the debt passive fund product offering, he added.

"Number of steps with respect to market making, iNAV on stock exchange, or disclosure of tracking error and tracking difference would equip investors to make the right choice of passive fund manager."

SEBI said that the passive ELSS scheme should be based on one of the indices comprising equity shares from top 250 companies in terms of their market capitalisation.