Sebi proposes new asset class midway between mutual funds and PMS

The Securities and Exchange Board of India (Sebi) has proposed the creation of a new class of assets that would be placed midway between mutual funds (MFs) and portfolio management services (PMS).

As per Sebi proposal the new product will also be introduced under the mutual fund structure, but with a minimum investment of Rs10 lakh. The new asset class, which will have a higher risk-return profile compared to mutual funds, will target investors with larger investible funds and higher risk appetite.

The aim is to offer regulated, higher-risk investment opportunities while curbing unauthorised schemes, according to Sebi's consultation paper.

The Sebi move comes after SBI Mutual Fund pointed to the need for a balanced regulatory framework that is less stringent than mutual funds but more rigorous than PMS.

Industry experts support the move, saying it will enhance investor confidence and ensure safety of investment. Also, such a regulatory framework will give more flexibility to asset managers.

The eligibility criteria prescribed for asset management companies also ensure that only those with a strong track record can launch these products. 

Sebi is also worried that small investors with limited risk appetites are being drawn into speculative investments, particularly in the futures and options (F&O) space. 

Household savings are increasingly getting attracted to such non-productive investments that is not going to any capital formation, according to Sebi chief Madhabi Puri Buch. 

This could also drain people’s bank accounts that is the cheapest source of funds for lenders. This could lead to a situation of lenders chasing deposits and driving up fund costs and interest rates 

The deposit growth in FY24 was 12.8%. That's the best in eight years but still a lot slower than the credit growth of over 16% highlighted.