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Mahesh

20/07/24 10:49 AM IST

Sebi’s new asset class

In News
  • The markets regulator has proposed a new asset class that will offer investment products positioned between mutual funds (MFs) and portfolio management services (PMS).
SEBI new Asset class
  • The new category of products, which would be introduced under the mutual fund structure, would have a minimum investment of Rs 10 lakh.
  • The new asset class will have a risk-return profile between that of MFs and PMS, which means it will be aimed at investors who have greater risk-taking capabilities and higher investment amounts than in MFs, but lower than in PMS.
  • The proposed New Asset Class intends to fill the gap between MFs and PMS by offering a regulated product featuring greater flexibility, higher risk-taking capability and a higher ticket size, to meet the needs of the emerging category of investors.
  • PMS are a category of professional financial services in which a skilled portfolio manager and stock market manager provides customised investment solutions to high net-worth individuals (HNIs) who are looking to invest in instruments such as equity, debt, gold, etc.
  • The minimum investment limit in PMS is Rs 50 lakh.
  • PMS are different from MFs, where the minimum investment limit is just Rs 100, and a pool of money is managed by a professional fund manager.
Objective
  • Sebi said that because of the gap between investment opportunities available in MFs and PMS, some investors in the segment are getting drawn towards unauthorised investment avenues.
  • The new asset class will help in curbing the proliferation of unregistered investment products.
  • The current range of investment products with varying risk-reward profiles are intended to meet the investment needs of retail, high net-worth, and institutional investors.
  • These products include MF schemes, which are focused on retail investors; PMS; and alternative investment funds (AIF), a privately pooled investment vehicle that collects funds from sophisticated investors, whether Indian or foreign, to make investments in accordance with a defined investment policy for the benefit of the investors.
  • The floor investment in AIF is Rs 1 crore.
  • The absence of such a product appears to have nudged investors in this segment towards unregistered and unauthorised investment schemes/ entities that promise unrealistically high returns, exploiting the expectation of investors for better yields, and leading to potential financial risks.
Working
  • The new asset class is proposed to be introduced under the MF structure, with relaxations in prudential norms necessary for such a product category to be effective.
  • The enhanced risks due to the relaxations may be mitigated by putting a higher limit on the minimum investment size.
  • The minimum investment amount for the new asset class has been proposed at Rs 10 lakh per investor within the asset management company (AMC)/ MF.
  • An AMC is an institution which manages and oversees operations of mutual funds.
  • This means that an investor must invest a minimum of Rs 10 lakh, across one or more investment strategies, under the new asset class offered by an AMC/MF.
  • This threshold shall deter retail investors from investing in this product, while attracting investors with investible funds between Rs 10 lakh and Rs 50 lakh, who are today being drawn to unauthorized and unregistered portfolio management service providers.
  • Like MF schemes, the new asset class will provide investors with an option of Systematic Investment Plan (SIP), Systematic Withdrawal Plan (SWP), and Systematic Transfer Plan (STP).
Source- Indian Express

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