SEBI approves new and safe asset class under Mutual Fund framework

Mumbai, Oct 1: The SEBI board has approved the introduction of a new investment product under the existing Mutual Fund framework that aims to curtail the proliferation of unregistered and unauthorised investment schemes entities, which often promise unrealistic high returns and exploit investors’ expectations for better yields, leading to potential financial risks.

According to the markets regulator, the new asset class is intended to bridge the gap between Mutual Funds and Portfolio Management Services in terms of flexibility in portfolio construction. As per SEBI, the new Mutual Fund product aims to provide investors with a professionally managed and well regulated product that offers greater flexibility, higher risk taking capabilities for higher ticket size, while ensuring that appropriate safeguards and risk mitigation measures are in place.

"For instance, safeguards for the new product will include; no leverage, no investment in unlisted and unrated instruments beyond those already permitted for Mutual Funds and derivatives exposure limited to 25 per cent of AUM for the purposes other than hedging and rebalancing. Offerings under the new product will be referred to as ‘Investment Strategies’, to maintain clear distinction from the schemes offered under the traditional Mutual Funds.

The minimum investment limit for the new product will be Rs 10 lakh per investor across all investment strategies of the new product in a particular AMC. Meanwhile, a draft circular relating to tighter derivatives regulations are expected to be issued soon, according to reports, as individual traders in the futures and options (F&O) market are incurring heavy losses.

According to a recent SEBI report, the aggregate losses of individual traders in the equity futures and options segment exceeded Rs 1.8 lakh crore over the three-year period between FY22 and FY24. Over nine out of 10 individual traders in the equity futures and options segment continue to incur significant losses. SEBI Chairperson Madhabi Puri Buch also mentioned at a recent event that the markets regulator is on the verge of bringing MF lite regulations and has had detailed consultations on the subject.