MUMBAI: The market regulator Sebi has proposed a new asset class, primarily meant for high risk-takers, that can bridge the gap between mutual funds and portfolio management services offering flexibility in the portfolio construction.
The Sebi consultation paper floated Tuesday proposes a minimum investment of Rs 10 lakh for this new asset class that could be allowed to invest even in derivatives for purposes other than hedging and rebalancing.
The Sebi consultation paper proposes a minimum investment of Rs 10 lakh across strategies in this asset class, and the product will be riskier than traditionally offered by mutual funds and therefore be branded differently and that all investments permissible to fund houses be available to this new asset class.
"The proposed new asset class seeks to provide investors with a regulated investment product featuring higher risk-taking capabilities and a higher ticket size, aimed at curbing proliferation of unregistered and unauthorised investment products," says the consultation paper.
The regulator has also said higher minimum investment is to deter retail investors from entering this space.
The minimum amount for investment under the new asset class shall be Rs 10 lakh per investor within the AMC/MF. This means an investor must park a minimum of Rs 10 lakh across one or more investment strategies, under the new asset class offered. This threshold shall deter retail investors from investing in this product, while attracting investors with investable funds between Rs 10 lakh and Rs 50 lakh, who are today being drawn to unauthorized and unregistered portfolio management service providers.
The new asset class can invest in derivatives as a way to take exposure in the market, and not just to hedge or rebalance the portfolio. But it has suggested the following three conditions under which this can be done.
One, the cumulative gross exposure through all investable instruments including derivatives and any other instruments should not exceed 100 percent of the net assets of the investment strategy.
Secondly, total exposure through exchange traded derivative instruments should not exceed 50 percent of the net assets of an investment strategy but this cap need not be applicable to index funds or ETFs launched under the new asset class, on indices specified by the market regulator.
And finally, total exposure through derivatives of a single stock should not exceed 10 percent of the net assets of an investment strategy.
