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Informist, Tuesday, Jul 16, 2024

 

--SEBI issues consultation paper on new asset class, product category

--SEBI paper proposes bridging gap between MF, portfolio management services

 

MUMBAI – The Securities and Exchange Board of India has floated a consultation paper that proposes a new asset class to bridge the gap between mutual funds and portfolio management services. The move is aimed at curbing the proliferation of unregistered and unauthorised investment products, the regulator said in a release.

 

"The proposed New Asset Class intends to fill the gap between MFs (mutual funds) and PMS (portfolio management services) 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," SEBI said. The regulator has sought comments for naming the new asset class.

 

SEBI has proposed that mutual fund houses that have been in operation for minimum three years, have average assets under management of at least 100 bln rupees, and no action has been taken against the asset management company, will be eligible to offer products under the new asset class.

 

Those asset management companies who do not fulfil the above-mentioned criteria can launch products under the new asset class provided they appoint a chief investment officer with 10 years of experience and having managed assets under management of at least 50 bln rupees, the regulator said.

 

They also need to appoint an additional fund manager with seven years of experience and who has managed at least 30 bln rupees of assets, it said.

 

SEBI has given examples of some investment strategies, such as Long-Short Equity Fund and Inverse ETF Fund.

 

As per the paper, a Long-Short Equity Fund is a fund that seeks to deliver returns by taking long and short positions in equity and equity-related instruments. "For example, the fund may be bullish on automobile sector and bearish on IT sector, and may invest in both these sectors by going long on automobile sector and short on IT sector," the paper said.

 

Inverse ETF Fund is a fund that seeks to generate returns that are negatively correlated to the returns of the underlying index.

 

SEBI has sought suggestions on the minimum investment threshold for the new asset class. The regulator has proposed that the minimum investment amount under the new asset class be 1 mln rupees per investor. "This means an investor must invest a minimum of 1 mln rupees, across one or more investment strategies, under the New Asset Class offered by an asset management company or a mutual fund."

 

The new asset class will also have the option of systematic investment plan and systematic withdrawal plan. SEBI has also proposed that no scheme will invest more than 20% of net asset value in units of real estate investment trusts and infrastructure investment trusts issued by a single issuer.

 

SEBI has also proposed that since the new asset class will be riskier, the branding and advertisements for these funds have to be distinct from traditional mutual funds. The regulator has sought public comments on the consultation paper by Aug 6.  End

 

Reported by Kshipra Petkar

Edited by Ashish Shirke

 

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