Higher-risk investors can soon access regulated opportunities without the high minimum thresholds of Portfolio Management Services (PMS) and Alternative Investment Funds (AIF), or resorting to unregulated structures. This is because the Securities Exchange Board of India (Sebi) has released a consultation paper for a new asset class designed to serve investors whose risk profile falls between mutual funds and PMS. The aim is to provide options for those attracted to unauthorized products offering high returns.
This new asset class will require a minimum investment of Rs 10 lakh. It will be riskier than mutual funds, with exposure to derivatives and single stock investments capped at 10% of net assets. Investment strategies will include inverse ETFs, allowing investors to hedge against market downturns or speculate on market declines. Experts believe this is a great opportunity for the asset management industry to create unique investment solutions for wealth creators.
“SEBI’s consultation paper for introducing new product classes with higher investment minimums than mutual funds and more flexibility can help investors access new strategies like long-short equities and inverse ETFs. This will allow them to express specific market views. A higher investment minimum ensures that smaller retail investors don’t enter these potentially higher-risk strategies, while also providing asset managers flexibility in managing liquidity windows, all within a strong regulatory framework,” said Kaustubh Belapurkar, Director of Fund Research at Morningstar Investment Research India.
This new asset class is expected to benefit from the rapid growth projected in managed assets (mutual funds, PMSs, and AIFs) over the next 5-7 years, according to experts. “SEBI’s latest consultation paper proposes a new asset class designed to bridge the gap between mutual funds and PMS. This is a significant advancement for India’s investment ecosystem and a fantastic opportunity for India’s wealth creators,” said Sandeep Jethwani, Co-founder of Dezerv.
Wealth managers will need to enhance their expertise to provide sound advice, proper allocation, and optimized portfolio performance. The decision on taxation—whether at the mutual fund level or under new norms—will be crucial for adoption. It remains to be seen if there will be changes in the tax code to support growth in this area, Jethwani added.