SEBI Proposes A New Asset Class With A Minimum ₹10 Lakh Investment; Alternative To Big Ticket PMS

The financial watchdog Sebi is putting forth a proposal for a "new asset class," a hybrid investment vehicle for high-net-worth individuals (HNIs) that combines elements of mutual fund plans and portfolio management programs.

For this product, Sebi is suggesting a minimum investment requirement of Rs 10 lakh per investor; however, leverage will not be permitted. Derivative strategies are not limited to hedging, as stated by Sebi in a consultation paper released on Tuesday.

Need for new asset class

According to Sebi, the new asset class is being introduced to close the gap "in terms of flexibility in portfolio construction" between MFs and PMS.

These products, which are "aimed at curbing the proliferation of unregistered and unauthorised investment products," would enable investors to take on greater risks at a higher ticket size in a regulated investment environment.

Current PMS ticket size

Currently, the PMS minimum investment threshold is Rs 50 lakh, while the MF minimum investment threshold is Rs 500 per investor. Something in between the two will be the new asset class that is being suggested.

Proposed investment strategies

Investment strategies that might be allowed include inverse exchange-traded funds (ETFs), which aim to produce returns that are negatively correlated to the returns of the underlying index, and long-short equity funds, which aim to deliver returns by taking long and short positions in stocks and equity-related instruments.

Derivatives in new asset class
According to the consultation paper, investing in derivatives is not limited to hedging or portfolio rebalancing; it can also be used as a means of gaining market exposure. However, it has provided guidelines for when this can be done.

An investment strategy's total exposure through exchange-traded derivatives shouldn't be more than 50 per cent of its net assets.

Ten percent of the net assets of an investment strategy should be the maximum amount of exposure to a single stock through derivatives.