The Securities and Exchange Board of India (Sebi) on Tuesday brought in a consultation paper on introduction of ‘New Asset Class’. The main objective of creating a new product, which is somewhere in between mutual funds and portfolio management services (PMS), is to address the needs of investors with higher risk-taking capabilities and a higher ticket size.
New asset class
The new asset class is expected to be somewhere between mutual funds and PMS where it will be looking to tap investors having investible funds between Rs 10 lakh and Rs 50 lakh.
The idea was first proposed by Sebi chairperson Madhabi Puri Buch at ane event in December last year. She said: “We feel there is room for an additional asset class somewhere between mutual funds and PMS… Sebi is looking into a whole new asset class.”
Who can invest
Mutual funds with assets under management (AUM) exceeding Rs 10,000 crore over three years or those managed by experienced chief investment officers (CIOs) and fund nanagers will be eligible to launch this new asset class.
Minimum investment
To discourage retail investors, SEBI has set a minimum investment threshold of Rs 10 lakh for this new asset class.
“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 unauthorised and unregistered PMS providers,” Sebi said in its consultation paper.
Features of newly proposed asset class
The newly proposed asset class that offers investors the option of systematic plans like systematic investment plans (SIP) for effective investment strategies within this new asset class.
Moreover, the investment strategies within this innovative asset class are structured to allow investments in derivatives or derivative strategies for market exposure.
Sebi emphasizes the importance of establishing a unique nomenclature for this proposed asset class to differentiate it from conventional mutual funds and existing investment products in the securities market like Portfolio Management Services (PMS), Alternative Investment Funds (AIF), Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (INVITs), and others.
“Over the years, a notable opportunity of a New Asset Class has emerged between Mutual Funds and PMS in terms of flexibility in portfolio construction,” the consultation paper said.
The main difference between traditional mutual funds and the new asset class is that mutual funds usually restrict derivative exposures to hedging and rebalancing. The new asset class will allow for derivative positions that go beyond these standard practices.
SEBI has invited public comments on the proposal by August 6, 2024.
Experts react
Reacting to the development, Edelweiss CEO Radhika Gupta said: “The new SEBI consultation paper on “New Asset Class” and creating a structure for differentiated, higher risk strategies looks very promising.”
She noted three points:
1. India is finally opening up to different investment products, styles and approaches. Passive, factor, inverse ETFs, alts, and more. There is no single way to invest.
2. AMC businesses of the future will build multiple centres of expertise on a platform rather than a single style or individual-driven business
3. From a customer point of view, there is nothing like the convenience of the good old MF platform – regulated, transparent, with great features like SIPs and now getting increasingly open for innovation.
Sonam Srivastava, Creator of Wright Research, said: “Restricting eligibility only to Asset Management Companies (AMCs) seems quite restrictive. This limitation could significantly curtail the talent pool of managers available for this new class. To truly unlock the potential of this investment option, SEBI should consider opening it up to PMS providers and other qualified investment professionals.”
Srivastava also listed the benefits of broader eligibility:
> Enhanced Expertise: Allowing a wider range of qualified managers would bring diverse expertise and innovation to the table, benefiting investors.
> Greater Appeal: With a broader talent pool, the new asset class could attract more investors looking for customized investment strategies.
> Increased Competitiveness: More competition among managers can lead to better performance and lower costs for investors.
Kirtan A Shah, managing director of private wealth at Credence Family Office, said: “I wonder how PMS with 50L ticket is not allowed to do a lot of things that a new asset class with a total of 10L is allowed to do?”
“The decision on taxation—whether at the Mutual Fund level or under new norms—will be crucial for its adoption. It remains to be seen if there will be changes in the tax code to boost assets here,” said Sandeep Jethwani, Co-founder, Dezerv HQ.