Sebi's proposed asset class is for the discerning investor, will add to AUM, say fund houses

The mutual fund industry's AUM has risen from Rs 24.25 lakh core in June 2019 to Rs 61.16 lakh crore as on June 2024, which is more than two-fold growth within five years.

Market regulator Sebi's proposal of a new asset class wedged between mutual funds and portfolio management services has got top money managers excited, who believe this move once formalised could allow fund houses to cater to discerning investors who are ready to pursue higher returns with the caveat that this class with carry greater risks.

MC Explainer | All about the new asset class proposed by Sebi

The Securities and Exchange Board of India (Sebi) has proposed that the minimum investment in this asset class be Rs 10 lakh across strategies, and that mutual fund houses or asset management companies offer these products, which will be riskier than what is traditionally offered by MFs and therefore be branded differently.

Radhika Gupta of Edelweiss AMC told CNBC-TV18 in a conversation on July 18 the move is a good development for the mutual fund industry that was constrained by what more it could do with regards to exposure to derivatives, or running some category of funds. "This creates a product for the discerning investor, somewhere mid-way in terms of flexibility", she added.

Radhika also believes this new asset class would not be taking investors away from mutual funds. "Out of the current Rs 61 lakh crore AUM with the mutual fund industry as of June, as much as Rs 30-35 lakh crore are plain vanilla equity funds," Radhika Gupta said. The new asset class will be incremental, satellite products to a core mutual fund investor, she added. In fact, Edelweiss AMC said this may open up the market and take some investors away from the AIF category on account of taxation benefits and given the attractive ticket size.

DP Singh, Deputy MD and Joint CEO of SBI MF too welcomed the proposal, adding that the fund houses will be able to offer good value to investors as the required skillsets exist within asset management companies. "A lot of funds will meet the criteria set by Sebi", Singh said in a conversation with CNBC-TV18.

Read More: SEBI’s proposal on new risky asset class a blessing or a curse?

The mutual fund industry's AUM has risen from Rs 24.25 lakh core in June 2019 to Rs 61.16 lakh crore as on June 2024, which is more than two-fold growth within five years. The total folios with fund houses stands at 19.10 crore, according to AMFI. DP Singh said this surplus has meant many investors are keen to explore a category that takes higher risk but offers high reward as well. "This was the demand of the industry and investors", he added.

Fund houses believe they have a spectrum of skillsets that they can offer to this discerning category of investors.

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