SEBI plans to introduce a new asset class to bridge the gap between mutual funds (MFs) and portfolio management services (PMS).

This will be offered under the MF structure, with new branding and relevant relaxations in existing MF norms. The minimum ticket size is proposed to be ₹10 lakh, one-fifth that of PMS schemes and one-tenth of alternative investment products.

This threshold will deter retail investors from investing in the product, while attracting investors with investible funds of ₹10-50 lakh, who being drawn to unregistered portfolio management service providers, the regulator said in a consultation paper on Tuesday.

“The proposed asset class seeks 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 unauthorized investment products,” the paper said.

MFs with an AUM of ₹10,000 crore that have been in operation for three years can offer the asset class. New or existing MFs not meeting these conditions can also offer the asset class, provided they appoint a chief investment officer who manages over ₹5,000 crore in AUM and has ten years experience.

The asset class can take exposure in derivatives for purposes other than hedging and portfolio rebalancing, subject to certain conditions. Investment strategies that can be offered include long-short equity funds and inverse ETFs that generate returns negatively correlated to the underlying index. Facilities such as systematic investment plan and systematic withdrawal plan will be available.

“India is finally opening up to different investment products, styles and approaches,” said Radhika Gupta, MD & CEO of Edelweiss MF. “AMC businesses of the future will build multiple centres of expertise on a platform rather than a single style or individual driven business. From a customer point of view, there is nothing like the convenience of the good old MF platform - regulated, transparent, with great features like SIPs and now getting increasingly open for innovation.”

Several existing MF norms may be relaxed. For instance, the single issuer limit for debt securities will be 20 per cent of net asset value, instead of 10 per cent for MFs. Schemes can invest 20 per cent of their NAV in REITs and InvITs (10 per cent for MFs).

Sandeep Jethwani, Co-founder, Dezerv said higher-risk profile investors can now access regulated opportunities without the high minimum thresholds of PMS and AIFs. The decision on taxation, whether at the mutual fund level or under new norms, will be crucial for its adoption, he said: “It remains to be seen if there will be changes in the tax code to boost assets here.”

“This seems a bit counterintuitive,” said Dhaval Kapadia, Head - Products, Ambit Wealth. “While investors would get more options, it might dilute the proposition for PMS and AIF players. For instance, instead of creating a new asset class offering long-short funds, it would be better that AIFs be allowed to offer such funds with a lower ticket size.”

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