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Always wanted to invest via a PMS? SEBI’s new asset class might help you do that

Upstox
By Upstox News Desk

3 min read | Updated on July 22, 2024, 14:26 IST

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SUMMARY

Feel left out because you are unable to invest in a PMS? Well, SEBI has proposed a New Asset Class (NAC) which will help retail investors participate in PMS-like products with a lower investment threshold. Read on to learn more about this asset class. That said, we also look at whether investing in conventional mutual funds is really hampering an investor’s wealth creation journey.

New asset class will help retail investor get PMS-like exposure

New asset class will help retail investor get PMS-like exposure

SEBI has proposed a New Asset Class (NAC) to bridge the gap between MFs and PMS. This initiative aims to provide a regulated investment product that offers higher risk-taking capabilities than traditional MFs and a lower ticket size than PMS/AIFs.

As per SEBI, the lower INR 10 lakh threshold shall attract investors with INR 10-50 Lakh investible funds, who are today being drawn to unauthorized and unregistered PMS providers.

Select features

  • Minimum Investment - INR 10 Lakhs.

  • Will be offered by specified AMCs and be listed on the stock exchange

  • Can take derivatives positions for non-hedging purposes, i.e. return generation.

  • Investors may have options like systematic investment plans (SIP), systematic withdrawal plans (SWP), and systematic transfer plans (STP).

  • Investment strategies include long-short equity which profits by investing in both long and short positions in the stocks.

  • The redemption policy, lock-in period, and exit load charges will vary for each fund. Further details are awaited.

How does NAC differ from existing offerings?

ProductMutual FundsNew Asset ClassPMSAIF
Minimum thresholdNo Minimum Threshold10 Lakhs50 Lakhs1 Crore
Risk appetiteLowHighHighVery High
Derivatives usageHedgingHedging and return generationHedgingHedging and return generation
Regulations intensityHighMediumLowLow
Flexibility in investment decisionsLowHighHighHigh
Optionality for high-risk investmentsNoYesYesYes
Managed byMFMFPMSAIF
STP, SIP, SWP optionalityYesYesNoNo
Risk ratings on productsYesYesNoNo
Redemptions flexibilityHighMediumLowLow

Source: SEBI

Implications

  • For investors: Provides a regulated and higher-risk investment, catering to sophisticated investors seeking diversified strategies

  • For AMCs/MFs: Opportunity to expand their product offerings and tap into a market segment that prefers higher risk and higher investment thresholds. They will need to ensure compliance with stringent criteria and derivative exposure limits

  • Market impact: Could enhance market depth and provide investors with more tailored investment products

Conclusion

While this is a welcome step, we would not knock down the tried and tested MF investment, which has delivered robust returns for investors, at minimal expenses. As we highlighted in our PMS article, mutual funds have demonstrated the ability to outperform them, across multiple time periods. To sum up, investors should:
  1. Undertake detailed diligence
  2. Ensure they are trusting their investment to the right fund managers
  3. Regularly monitor performance, and ensure they are realizing appropriate returns
Disclaimer: This article is for informational purposes only and must not be considered investment advice. Investors should consult with experts before making any investment decisions.
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About The Author

Upstox
Upstox News Desk is a team of journalists who passionately cover stock markets, economy, commodities, latest business trends, and personal finance.

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