Securities and Exchange Board of India (Sebi) on July 16, 2024, proposed a new asset class with a minimum investment of Rs 10 lakh, where investors can take more risk, and thus bridge the gap between mutual funds and portfolio management services.
The minimum investment threshold of Rs 10 lakh per investor, is just one-fifth that of PMS schemes' Rs 50 lakh limit and one-tenth of alternative investment products' (AIF) one crore limit.
According to Sebi, this new class aims to offer regulated investment products with higher risk-taking capabilities and larger ticket sizes, while curbing unregistered and unauthorized investment products.
Says Kaustubh Belapurkar, Director – Fund Research at Morningstar Investment Research India Private Limited, "A higher investment minimum ensures smaller retail investors don’t invest into these strategies with potentially higher risk as well as it allows asset managers flexibility in determining liquidity windows for these products while continuing to be under the strong regulatory framework."
Investment Strategies
Currently, there are two investment strategies considered for this product. These are the long-short equity fund, which aims to deliver returns by taking both long and short positions in equity and equity-related instruments, and the inverse ETF (exchange-traded fund)/fund, which aims to generate returns that are negatively correlated to the returns of the underlying index.
Investors may be provided with the option of a systematic investment plan (SIP), systematic withdrawal plan (SWP) and systematic transfer plan (STP) for these investment strategies, Sebi's consultation paper said.
The new asset class will allow relaxed investment limits for debt securities and real estate investment trusts (REITs) where the single issuer limit is increased from the current 10 per cent of NAV to 20 per cent.
Existing and newly registered MFs/AMCs can offer products under this new asset class via two routes. The first route requires MFs to have been in operation for at least three years, with an average AUM of not less than Rs 10,000 crore and no actions initiated against the sponsor/AMC by Sebi in the last 3 years. The second route allows MFs to appoint a CIO with at least ten years of fund management experience and managing AUM of not less than Rs 5,000 crore for the new product category, and an additional fund manager with certain qualifications.
Radhika Gupta, MD & CEO Edelweiss Mutual Fund, called the proposal on 'New Asset Class' very promising. " India is finally opening up to different investment products, styles and approaches. Passive, factor, inverse ETFs, alts and more. There is no single way to invest. AMC businesses of the future will have multiple centres of expertise on a platform, rather than a single style or individual-driven business. From a customer point of view, there is nothing like the convenience of the good old MF platform - regulated, transparent, with great features like SIPs and now getting increasingly open for innovation," she said.
