SEBI’s Bold New Asset Class: Unlocking Higher Risk Investments for Sophisticated Investors

Introduction of a Revolutionary Investment Product

A novel asset class that is intended to appeal to investors who are willing to take on more risk and have greater ticket sizes is being proposed by SEBI. By providing a regulated alternative, this program seeks to reduce the spread of unregistered and unlicensed investment schemes. SEBI is seeking feedback from the general public on this cutting-edge new product category.

Currently, the investment market provides a variety of products catered to different investor types, including retail, high net worth, and institutional investors. While Alternative Investment Funds (AIF) demand at least INR 1 crore, Portfolio Management Services (PMS) require a minimum investment of INR 50 lakhs, and Mutual Funds (MFs) cater to individual investors with low ticket sizes.

Identifying the Market Gap

The markets for mutual funds and portfolio management services are very different from one another. Due to this gap, investors are being drawn to unregistered schemes that offer huge returns but come with significant financial dangers. To close this gap and provide investors with a regulated, flexible investment choice, a new asset class is being introduced.

The new asset class, which offers a regulated product with more flexibility, higher risk capability, and a larger ticket size, will close the gap between PMS and mutual funds. This new line of products will serve a growing segment of the market that is looking for more complex investing options.

Unique Nomenclature and Branding

SEBI proposes a distinct nomenclature to differentiate the new asset class from conventional Mutual Funds and other investment products. In order to clearly distinguish these investments from other products like PMS, AIFs, Real Estate Investment Trusts (REITs), and Infrastructure Investment Trusts (INVITs), the branding will highlight how unique these investments are.

The new asset class’s investment methods will provide fixed maturity periods or even personalized redemption frequencies, from daily to annual. This adaptability enables investment managers to satisfy the various demands of investors while efficiently managing liquidity.

Minimum Investment and Systematic Plans

At the AMC/MF level, each investor will need to invest a minimum of INR 10 lakh in the new asset class. For their investing strategies, investors can also choose systematic plans like Systematic investing Plans (SIP), Systematic Withdrawal Plans (SWP), and Systematic Transfer Plans (STP).

Derivatives are one possible investing strategy in this new asset class to increase market exposure. Exchange-traded derivatives exposure can only account for a maximum of 50% of an investment strategy’s net assets overall; the maximum exposure to a single stock derivative is 10%.

The risk-o-meter for the new asset class will have a distinct representation and nomenclature distinct from Mutual Fund schemes in order to prevent confusion. This distinct differentiation will aid investors in comprehending the risk profile of their investments accurately.

Conclusion

By offering regulated, high-risk investing options to sophisticated investors, SEBI’s proposed new asset class is a major advancement. This program attempts to provide a structured alternative to unregistered schemes and minimize their attraction by bridging the gap between Mutual Funds and Portfolio Management Services. This cutting-edge product category, about which SEBI is currently accepting public feedback, has the potential to completely change the financial landscape by providing discerning investors with increased flexibility and risk-taking capacity.

Source: Moneycontrol