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Explained: Sebi’s new asset class and how it can benefit HNI investors | Personal finance

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Explained: Sebi’s new asset class and how it can benefit HNI investors | Personal finance

The Securities and Exchange Board of India (Sebi) has announced norms for foreign venture capital investors (FVCIs), effectively bringing them on par with those for foreign portfolio investors (FPIs). The amendments represent a comprehensive whole

Illustration: Ajay Mohanty

3 minutes reading Last updated: Oct 02, 2024 | 11:52 am IST

Markets regulator Sebi has approved the creation of a new asset class that will bridge the gap between mutual funds (MFs) and portfolio management services (PMS). This new product aims to provide investors with a wider range of investment options and meet diverse needs.


Key features of the new asset class:

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  • Flexibility: The new asset class will offer investors more flexibility in constructing their portfolio compared to traditional mutual funds.


  • Minimum investment: The minimum investment amount is Rs. 10 lakh, making it accessible to a wider range of investors than PMS, which typically requires a much higher investment.


  • Structured approach: While the new asset class offers flexibility, it will still have a structured approach, allowing investors to take advantage of some of the benefits of mutual funds.


  • Regulatory Oversight: SEBI will regulate this new asset class and ensure investor protection and transparency.


  • Clear distinction: The term “Investment Strategies” will be used to distinguish this new asset class from traditional investment funds.


Tackling the investment gap:

Currently, the investment landscape offers three main options:

  • Mutual Funds: Require a minimum investment of Rs 500.

  • Portfolio Management Services (PMS): Requires a minimum investment of Rs. 50 lakhs.

  • Alternative Investments: Require a minimum investment of Rs. 1 crore.

The new asset class will fill the gap between mutual funds and PMS, giving investors a viable option for investments between Rs. 10 lakh and Rs. 50 lakhs.

“The introduction of the New Asset Class (NAC) by SEBI is a very commendable move. It provides an excellent opportunity for high-net-worth individuals (HNIs) with a high risk appetite to capitalize on strategies such as long-short and inverse exchange-traded funds, which can significantly enhance their portfolios,” said Rahul Jain, President & Head of Nuvama Wealth .

Currently, these strategies are not available through traditional mutual funds. Importantly, these strategies will be managed by professionals in accordance with regulator regulations.

“The NAC will benefit investors by removing the need to use unregulated and unauthorized products to access these strategies,” Jain added.


Is it a riskier proposition?

“The products appear riskier, but only marginally, and offer no profit sharing for the managers, and may also need to be detailed by the regulator before they can be offered,” said Deepak Shenoy, founder and CEO of Capitalmind. .

Sebi said the new asset class will have to have a minimum investment amount of Rs 1 crore. “This was stated in the consultation document, but it counts as a total investment in all these new investment categories together. So per scheme, the amount may be less,” Shenoy added.


Guarantees:


  • No leverage: To limit risks, the new asset class will not allow leverage.


  • Limited investments: Investments in unlisted and unrated instruments will be subject to the same restrictions that apply to investment funds.


  • Exposure to derivatives: Exposure to derivatives is limited to 25% of assets under management (AUM) for non-hedging and rebalancing purposes.


Tackling unregulated schemes:

The new asset class aims to combat the proliferation of unregistered and unauthorized investment schemes that often promise unrealistic returns and exploit investors. By providing a regulated and transparent alternative, Sebi hopes to reduce the appeal of such schemes.

First publication: Oct 02, 2024 | 11:52 am IST

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