The Securities and Exchange Board of India (SEBI) released a consultation paper on Tuesday (16 July, 2024) proposing the creation of a “New Asset Class” for investors.

This initiative aims to fill the gap between mutual funds and portfolio management services (PMS), designed for investors who are comfortable with higher risk tolerance and larger investment capacities.

In the consultation paper, SEBI said, “The proposed New 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.”

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Purpose of the New Asset Class

This new product is designed to prevent high-value investors from turning to unregistered and unauthorized investment schemes. By offering a regulated option, SEBI hopes to provide a safer, structured investment alternative that sits between mutual funds and PMS.

Current Investment Options

Currently, investors have several options depending on their risk appetite and investment amount:

Mutual Funds: Retail-oriented with a low ticket size.

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

Alternative Investment Funds (AIFs): Requires a minimum investment of Rs 1 crore.

The New Asset Class aims to provide more flexibility in portfolio construction than mutual funds, while being more accessible than PMS and AIFs.

Eligibility Criteria for Offering the New Asset Class

SEBI has outlined two routes for mutual fund Asset Management Companies (AMCs) to qualify for offering products under this new category:

Route 1: Strong Track Record

• The AMC must have been in operation for at least three years.
• The AMC must have an average Assets Under Management (AUM) of at least Rs 10,000 crore over the past three years.
• No regulatory actions should have been taken against the AMC in the past three years.

Route 2: Alternate Route

• The AMC must appoint a Chief Investment Officer (CIO) with at least 10 years of fund management experience and managing an AUM of at least Rs 5,000 crore.
• Additionally, the AMC must appoint a fund manager with at least seven years of experience and managing an AUM of at least Rs 3,000 crore.

Investment Threshold and Options

The minimum investment amount for the New Asset Class is proposed to be Rs 10 lakh. This threshold is intended to deter retail investors while attracting those with investable funds between Rs 10 lakh and Rs 50 lakh.

Also Read: SEBI wants all Mutual Funds to Disclose Risk-Adjusted Returns (RAR) – Here’s Why 

Systematic investment options like Systematic Investment Plans (SIP), Systematic Withdrawal Plans (SWP), and Systematic Transfer Plans (STP) will also be available. However, the total investment amount should not fall below Rs 10 lakh due to withdrawals or systematic transactions.

Structure and Redemption

Investment Strategies: Under this new category, AMCs can offer ‘Investment Strategies’ in a pooled fund structure similar to mutual funds but distinct in branding and advertising.

Redemption Frequency: The redemption options can range from daily to annually, based on the nature of investments.

Listing on Stock Exchanges: Units of these strategies can be listed on recognized stock exchanges, provided the redemption frequency is more than a week.

Approval Process: All new Investment Strategies must be approved by the trustees and receive final observations from SEBI before launch.

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Disclaimer: The above content is for informational purposes only. Please consult a SEBI-registered investment advisor before investing.