SEBI has introduced a proposal for a new asset class aimed at bridging the gap between Mutual Funds (MFs) and Portfolio Management Services (PMS). This new category requires a minimum investment of Rs 10 lakh and allows for greater flexibility in portfolio construction compared to traditional MFs.
The proposed asset class will enable investments in derivatives not just for hedging or rebalancing, but also as a direct market exposure tool. This approach intends to offer investors higher risk and potentially higher return investment options that exceed the traditional boundaries of MFs.
According to SEBI’s consultation paper released on July 16, asset management companies will manage these new products. The products will be differentiated from standard mutual funds offerings, marking them as higher risk and thus requiring distinct branding.
Investment in derivatives under this new category will be subject to specific conditions to manage risk. The cumulative gross exposure combining all instruments, including derivatives, is capped at 100 percent of the net assets of any given investment strategy.
Further regulations stipulate that exposure through exchange-traded derivatives cannot exceed 50 percent of a strategy’s net assets. However, this limit does not apply to index funds or ETFs based on specified indices under this new class. Additionally, exposure to derivatives of a single stock must not surpass 10 percent of the strategy’s net assets.
