SEBI proposes to bring ‘new asset class’ with minimum investment limit of Rs 10 lakh

The new asset class is likely to provide investors with a regulated investment product featuring higher risk-taking capabilities and a higher ticket size, aimed at curbing the proliferation of unregistered and unauthorised investment products, the market regulator said.

“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,” Sebi said in a consultation paper.

The regulator has recommended a distinct nomenclature for the new asset class to distinguish it from traditional MFs and other investment products already available in the securities market such as PMS, AIF (alternative investment funds), REITs (real estate investment trust) and INVITs (Infrastructure Investment Trust).

Sebi said that the minimum investment amount for investment under the new asset class would be Rs 10 lakh per investor at the level of the new asset class within the AMC (asset management company) or MF.

Investors may also have an option of systematic plans such as systematic investment plan (SIP), systematic withdrawal plan (SWP) and systematic transfer plan (STP) for investment strategies under the new asset class.

As part of the new asset class, Sebi has proposed that AMC can offer investment strategies under pooled fund structure, akin to MF schemes. This nomenclature is proposed in order to differentiate between the MF schemes currently being managed by the AMCs and the schemes under the new asset class. The redemption frequency of these investment strategies can be tailored based on the nature of investments to allow the investment manager to adequately manage liquidity without imposing undue constraints on investors, the regulator suggested.

Some of the investment strategies that may be permitted include long-short equity fund — a fund that seeks to deliver returns by taking long and short positions in equity and equity-related instruments and inverse ETF (exchange traded fund)/fund — a fund that seeks to generate returns that are negatively correlated to the returns of the underlying index.

The regulator has set two routes of eligibility criteria for the existing as well as newly registered MFs/ AMCs to be able to offer products under the new asset class. Under the first route, all MFs that are in operation for a minimum of three years and have average asset under management (AUM) of not less than Rs 10,000 crore, in immediately preceding 3 years, can offer products under the new asset class. Besides, Sebi should not have initiated any action against the sponsor/AMC in the last 3 years.

Those existing and new MFs that do not fulfill the first eligibility route, can offer products under the new asset class by appointing a chief investment officer (CIO) for the new product category. The CIO should have an experience of fund management of at least 10 years and managing AUM of not less than Rs 5,000 crore. These MFs will have to appoint an additional fund manager for the new asset class with experience of fund management of at least 7 years and managing AUM of not less than Rs 3,000 crore.