Have higher risk appetite ? There's a new asset class option for HNIs

The new asset class, dubbed "Investment Strategies," is aimed at high-risk investors and seeks to bridge the gap between mutual funds (MFs) and portfolio management services (PMS)

Market regulator  Securities and Exchange Board of India (Sebi) has approved the introduction of a new asset class designed to cater to high-risk investors. This new asset class aims to bridge the gap between mutual funds and portfolio management services (PMS) in terms of flexibility in asset construction.

Key Features:

• Minimum Investment: Investors will need to invest a minimum of Rs 10 lakh across all investment strategies of the new product offered by a particular asset management company (AMC).
• Flexibility: The new asset class will provide investors with greater flexibility compared to traditional mutual funds in terms of asset allocation and investment strategies.

• Addressing Unregulated Schemes: Sebi aims to curb the proliferation of unregistered and unauthorized investment schemes that often promise unrealistic returns and exploit investors.

The new asset class will provide a regulated product with features like SIP (Systematic Investment Plan), higher risk-taking capability, and a higher ticket size to meet the needs of the emerging category of investors. 

The higher threshold will deter retail investors from investing in this product while attracting investors with investible funds between Rs 10 lakh and Rs 50 lakh, who are being drawn to unauthorised and unregistered portfolio management service providers.

The offerings under the new product will be referred to as ‘Investment Strategies’, to maintain a clear distinction from the schemes offered under the traditional mutual funds.

Sebi floated a consultation paper on introducing a 'New Asset Class' in July, inviting public comments by August 6, 2024.

Safeguards:

• No Leverage: The new product will not allow for leverage, limiting the risk of excessive exposure.
• Restricted Investments: Investments in unlisted and unrated instruments will be restricted to the same limits allowed for mutual funds.
• Derivatives Exposure: Derivatives exposure will be capped at 25% of the Asset Under Management (AUM) for purposes other than hedging and rebalancing.
   

Benefits:

• Expanded Investment Options: The new asset class will provide investors with a wider range of investment opportunities.
• Tailored Strategies: Investors can benefit from customized investment strategies that align with their risk tolerance and financial goals.
• Investor Protection: Sebi's oversight and regulations will provide a degree of protection for investors.