SEBI to introduce 'new asset class' for high-risk-seeker investors

SEBI plans to introduce a new asset class to bridge the gap between Mutual Funds and Portfolio Management Services (PMS). With a new asset class, higher risk-takers can invest in a regulated investment product at a higher ticket size, curbing the rise of unregistered and unauthorised investment products, the market regulator shared in a consultation paper released on July 16.

To deter retail investors, SEBI has placed a minimum investment limit of Rs.10 lakh, across one or more investment strategies, under the new asset class offered by an AMC/MF. At the same time, SEBI hopes this will attract investors earlier being drawn to unauthorised and unregistered portfolio management service providers, with investible funds between Rs. 10 lakh and Rs. 50 lakh.

This class will be under the Mutual Fund structure with relaxed prudential norms, higher minimum investment sizes to mitigate risks and a distinct nomenclature to differentiate it from existing products like PMS, AIFs, REITs, and INVITs.

The current investment products the SEBI regulates include Mutual Fund schemes with low ticket sizes and portfolio management services (PMS) with a ticket size of Rs. 50 lakhs, and alternative investment funds (AIFs) with a minimum investment value of Rs. 1 crore. The absence of any alternative between mutual funds and PMS leads some investors towards unregistered and unauthorised schemes promising higher returns but with higher financial risks.

The new asset class will offer systematic facilities such as Systematic Investment Plans (SIPs), Systematic Withdrawal Plans (SWPs), and Systematic Transfer Plans (STPs). The asset class can take exposure in derivatives for purposes beyond hedging and portfolio rebalancing, under certain conditions. Potential investment strategies include long-short equity funds and inverse ETFs, which generate returns that are negatively correlated with the underlying index. The gross exposure however should not exceed 100% of the net assets of the investment strategy.

The regulator proposes two routes for both existing and newly registered mutual funds/asset management companies (AMCs) to offer products under the New asset class. Mutual funds must have an average asset under management (AUM) of at least INR 10,000 crores in the last 3 years. Alternatively, the newly registered AMCs must appoint a chief investment officer (CIO) with 10 years of fund management experience and managing AUM of at least Rs. 5,000 crore, an additional fund manager with at least 7 years of fund management experience and managing AUM of at least Rs. 3,000 crore.

On the development, Edelweiss Asset Management CEO Radhika Gupta says, “The new SEBI consultation paper on “new asset class” and creating a structure for differentiated, higher risk strategies looks very promising.”