SEBI Introduces New Asset Class for High-Risk Investors

Source: The post on SEBI Introduces New Asset Class for High-Risk Investors is based on the article “Sebi to Introduce New Asset Class; Minimum Investment Size at Rs 10 Lakh” published in “OutlookBusiness” on 1st October 2024.

Why in the News?

Recently, SEBI has introduced a new regulated asset class aimed at high-risk investors.

About SEBI’s new regulated asset class

Objective: The goal is to bridge the gap between mutual funds and portfolio management services, offering more flexibility in asset construction.

Minimum Investment Requirement: Investors are required to invest a minimum of Rs 10 lakh per investor. This investment applies across all investment strategies of the new product within a particular Asset Management Company (AMC).

Key Features of the New Asset Class

1. Systematic Investment Plan (SIP): The product will offer SIP options to investors.

2. Limited Derivatives Exposure: Derivatives exposure will be capped at 25% of Assets Under Management (AUM) for purposes other than hedging and rebalancing.

3. No Leverage: The product will not allow leverage, ensuring more conservative risk management.

4. Restricted Investment in Unlisted Instruments: No investments will be allowed in unlisted or unrated instruments, except for those already permitted for mutual funds.

5. Target Investor Segment is designed for investors with investible funds ranging between Rs 10 lakh and Rs 50 lakh.

6. The higher investment threshold is meant to deter retail investors and attract those seeking more sophisticated investment strategies. It aimed at reducing the influence of unregistered and unauthorised investment schemes that often promise unrealistic high returns.

7. Benefits:  SEBI will prevent the new product from being used for speculative purposes, enhancing investor protection. The new product will be referred to as ‘Investment Strategies’ to distinguish it from traditional mutual funds.

UPSC Syllabus: Indian economy