The Securities and Exchange Board of India (SEBI) is asking for public comments on a proposal for a new asset class. This innovative asset aims to connect mutual funds (MFs) and Portfolio Management Services (PMS).
What does it mean for you?
SEBI Proposes New Asset Class: Bridging the Gap Between Mutual Funds and PMS for Safer Investments.
This new asset class seeks to provide investors with a regulated product that offers higher risk-taking potential.
SEBI is open to your thoughts.
If you want to share your feedback, check out the details of this new asset class, which will soon enter the Indian market!
Evolution of Investment Management
In its latest consultation paper, SEBI noted the major changes in India’s investment management landscape over the years. The aim of this new asset class is to offer a safer alternative to unregistered investment products.
Sebi’s proposed regulatory framework allows for higher risk-taking compared to traditional mutual funds. This would ensure investor protection through safeguards. The minimum investment for this new asset class is set at ₹10 lakh.
Let us understand the structure of this new asset class!
Structure of the New Asset Class
Under the New Asset Class, Asset Management Companies (AMCs) can offer ‘Investment Strategies.’ These are similar to mutual funds. The name helps distinguish them from existing mutual fund schemes.
The redemption frequency for these strategies can be flexible. It can be daily, weekly, monthly, or fixed maturity. This flexibility helps manage liquidity and reduces restrictions on investors.
To protect investors, AMCs can set notice or settlement periods for redemptions. The units of these strategies may also be listed on recognized stock exchanges if they have a redemption period longer than a week.
No Investment Strategy can launch without approval from trustees and SEBI. The rules for offer documents will generally align with mutual fund schemes unless stated otherwise.
For instance, some potential strategies include:
- Long-Short Equity Fund: This fund aims to make money by taking both long and short positions.
- Inverse ETF/Fund: This type of fund seeks to provide returns that move in the opposite direction of a particular index. This will allow traders to hedge against market downturns.
SEBI News: Minimum Investment Threshold For the New Asset Class
As per the consultation paper by SEBI, here are the minimum requirements:
- Investment Requirement: To invest in the New Asset Class, each investor must put in at least INR 10 lakh.
This can be across one or more investment strategies offered by an Asset Management Company (AMC) or Mutual Fund (MF).
This minimum amount limits retail investors while attracting those with funds between INR 10 lakh and INR 50 lakh. These investors might otherwise seek unregistered portfolio management services.
- Systematic Investment Options: Investors can choose systematic plans for their investments in this new class.
These could be:
Systematic Investment Plan (SIP)
Systematic Withdrawal Plan (SWP)
Systematic Transfer Plan (STP)
- Maintaining Investment Amount: An investor’s total amount should never fall below INR 10 lakh due to withdrawals or systematic transactions.
However, market fluctuations may cause the investment value to drop below this threshold.
Derivative Exposure Guidelines
The new asset class allows investments in derivatives for more than just hedging and rebalancing. Sebi has set limits, capping total derivative exposure at 100% of net assets. There are also specific limits for exchange-traded and single-stock derivatives.
Requirements for Asset Management Companies
Here are some of the conditions for the AMCs:
- Asset Management Companies (AMCs) must be operational for at least three years.
- AMCs should have an average Asset Under Management (AUM) of ₹10,000 crore over the last three years.
Check out the top AMCs in India!
Addressing Emerging Investor Needs
This new asset class could meet the demands of retail investors who desire more sophisticated options without meeting the high minimums required for PMS accounts. This initiative could also help reduce financial scams that pose as PMS offerings.
Public Comments Invitation
SEBI has invited public comments on the proposal to introduce a new asset class/product category. You can submit your comments/suggestions through the online form by August 6, 2024.
Submit Online: Use the following link to access the form: SEBI Public Comments.
Source: livemint.com/market sebi.gov.in/reports-and-statistics
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Disclaimer: Investments in the securities market are subject to market risks; read all the related documents carefully before investing.