The Securities and Exchange Board of India (SEBI) has approved the introduction of a 'new asset class' to bridge the gap between mutual funds and portfolio management services (PMS).
The board of the capital market regulator, which met on Monday, gave the final go-ahead for the new product with the minimum ticket size pegged at Rs 1o lakh per investor across all investment strategies of the new product in a particular AMC.
"Offerings under the new product will be referred to as ‘Investment Strategies’, to maintain clear distinction from the schemes offered under the traditional Mutual Funds. The minimum investment limit for the new product will be INR 10 lakh per investor across all investment strategies of the new product in a particular AMC. The new product is intended to add depth and variety to the investment landscape of the country through a new asset class," stated a release issued by SEBI on Monday.
In July this year, SEBI had released a consultation paper asking industry for feedback to launch a new asset class that would be between a portfolio management service and a mutual fund, to allow investors with a higher investable amount to take more risk.
As per the consultation paper, this new asset class would be aimed at investors with investable surpluses of Rs 10-50 lakh, with a minimum entry requirement of Rs 10 lakh. The asset class would offer higher returns with greater risk. Investment strategies would include Long-Short Equity Funds, which involve taking both long and short positions, and Inverse ETFs/Funds.
Globally, such strategies exist in markets like the U.S. and Australia, but they are currently unavailable in India. Eligible mutual funds with at least Rs 10,000 crore in assets or managed by experienced fund managers would be permitted to launch these products.
Additionally, the paper had suggested that total gross exposure, including derivatives, cannot exceed 100% of net assets. SEBI had at that time invited feedback from the Association of Mutual Funds in India (AMFI) and individual asset management companies, with suggestions.
"The new product also aims to curtail the proliferation of unregistered and unauthorized investment schemes/entities, which often promise unrealistic high returns and exploit investors’ expectations for better yields, leading to potential financial risks," stated the SEBI release issued on Monday.
"The new product aims to provide investors with a professionally managed and well regulated product that offers greater flexibility, higher risk-taking capabilities for higher ticket size, while ensuring that appropriate safeguards and risk mitigation measures are in place.... safeguards for the new product will include; no leverage, no investment in unlisted and unrated instruments beyond those already permitted for Mutual Funds and derivatives exposure limited to 25% of AUM for the purposes other than hedging and rebalancing," it added.
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