SEBI’s new asset class and how it could benefit investors

There is an investment opportunity between mutual funds and PMS. SEBI’s new asset class will fill this gap between MFs and PMS in terms of flexibility in portfolio construction.

Benefits of the new investment product

The new investment product aims to provide investors with a professionally managed and well-regulated product that offers greater flexibility and higher risk-taking capabilities for higher ticket size. At the same time, it seeks to ensure that appropriate safeguards and risk mitigation measures are in place.

Safeguards for the new product will include no leverage, no investment in unlisted and unrated instruments beyond those already permitted for mutual funds and derivatives exposure limited to 25 per cent of AUM (asset under management) for the purposes other than hedging and rebalancing.

The new product also aims to curtail the proliferation of unregistered and unauthorized investment schemes/entities, which often promise unrealistic high returns and exploit investors’ expectations for better yields, leading to potential financial risks.

Minimum investment limit

The markets regulator said that the minimum investment limit for the new product/asset class will be Rs 10 lakh per investor across all investment strategies of the new product in a particular AMC (asset management company).

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