The Securities and Exchange Board of India (SEBI) has unveiled plans to introduce a new asset class aimed at filling the gap between Mutual Funds and Portfolio Management Services (PMS).
This move is designed to provide regulated, higher-risk investment opportunities while curbing unauthorised schemes in the financial markets, the market regulator said in its consultation paper.
Key features of the proposed asset class
Eligibility criteria
Mutual Funds with assets under management (AUM) exceeding ₹10,000 crore over three years or those managed by experienced Chief Investment Officers (CIOs) and Fund Managers will be eligible to launch this new asset class.
Minimum investment threshold
To discourage retail investors, SEBI has set a minimum investment threshold of ₹10 lakh for this new asset class.
Investment flexibility
The new asset class will allow relaxed investment limits for debt securities, equity, and Real Estate Investment Trusts (REITs), enabling fund managers greater flexibility in portfolio allocation.
Derivative exposures
Unlike traditional Mutual Funds, which typically limit derivative exposures to hedging and rebalancing, the new asset class will permit derivative positions beyond these conventional uses.
Public consultation
SEBI has invited comments from stakeholders on several aspects including the nomenclature, eligibility criteria, and branding of the new asset class to ensure clarity and regulatory compliance.
Trustees and sponsors of Mutual Funds intending to operate within this new asset class must seek SEBI’s approval before commencing operations.
Distinct branding
SEBI proposes distinct branding for the new asset class to differentiate it clearly from traditional Mutual Funds, thereby avoiding confusion among investors.
Redemption flexibility
Investment strategies under the new asset class will allow fund managers to offer flexible redemption frequencies, catering to varying investor needs.