On July 16, 2024, the Securities and Exchange Board of India (SEBI) unveiled a consultation paper proposing the introduction of a new asset class designed for a new category of high-risk investors. These investors, with a net worth sufficient for substantial investments but below the threshold required for SEBI registered Portfolio Management Services (PMS), were increasingly turning to unregulated products. SEBI’s initiative aims to cater to these investors by offering a regulated alternative through registered Mutual Funds (MF) under a distinct umbrella, ensuring a clear bifurcation between traditional MF schemes and this new asset class.
Following are the bullet points about the Consultation Paper [‘CP’].
1. Background: This CP is brought by SEBI to introduce a new king of investment product for new category of investors. This new category of investors has come up recently. These are investors who are ready to take higher risk and are having a net worth for investing an amount which is of a higher ticket size than mutual fund but less than as required with a SEBI registered Portfolio Management Services [‘PMS’]. Such investors were getting inclined towards unregulated products. This new asset class would cater to these categories of investors.
2. Who can issue this: This new asset class would be introduced by SEBI through registered Mutual Funds [‘MF’] but under a separate umbrella (i.e. with clear bifurcation between MF schemes and this new asset class]. MF can issue these products only if they fulfill registration criteria specified by SEBI.
3. Nomenclature: SEBI has initially termed this asset class as ‘Investment Strategies’. SEBI has also sought views and suggestions of stakeholders as to whether this terminology should be continued or this new asset class shall be termed differently. Investment Strategies would be differently named in order to clearly bifurcate between MF schemes and new asset class.
4. Minimum ticket size of investment: This new asset class would cater to investor’s category who are capable or worth investing an amount of Rs 10 lakhs minimum and continue to keep this minimum amount of investment. This is as against min. SIP of Rs 500 and Rs 100 in some cases.
5. Where to invest: Investment strategies would be allowed to take exposure in all segments of the market. SEBI has floated a proposal as to whether and how much investment should be allowed by the new asset class for investing in all segments of market as compared to already allowed for MF as MF master circular.
6. As ‘Investment Strategies’ is for high-risk investors SEBI has proposed to allow funds under ‘Investment strategies’ to have a higher exposure to some segments of the market.
7. Disclosures of investments: It is proposed that similar to MF ‘Investment Strategies’ also would publish their strategies of investment on their website.
8. Impact: Overall, this is a welcome move. With this new category of product ‘Investment strategies’ proliferation of illegal investment products in the market would get reduced. This would also bring money of genuine investors to market thereby increasing depth of the market.
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Disclaimer: This article provides general information existing at the time of preparation and we take no responsibility to update it with the subsequent changes in the law. The article is intended as a news update and Affluence Advisory neither assumes nor accepts any responsibility for any loss arising to any person acting or refraining from acting as a result of any material contained in this article. It is recommended that professional advice be taken based on specific facts and circumstances. This article does not substitute the need to refer to the original pronouncement
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