To plug a yawning market gap between the risk-return profile of mutual funds (MFs), which allow investments starting with as little as ₹100, and that of portfolio management services (PMS), for which investors need at least ₹50 lakh, the Securities and Exchange Board of India (Sebi) has proposed a new asset class.
With an entry ticket of ₹10 lakh, it would offer an attractive mix of risk and reward to investors who find MF strategies too conservative but PMS investments too aggressive. The lack of a midway option has led many investors to dubious schemes and dicey avenues, exposing them to unwitting risks. MF houses that meet specified criteria will be allowed to operate these new funds, which will be given a name that sets them apart from MFs.
Their strategic approach will need to be taken from a Sebi-approved list. A long-short equity fund, for example, would be allowed to take long or short positions, while an inverse fund would aim to generate returns that are negatively correlated with those of an underlying index. While retail investors need to be shielded from excessive risk, those with an appetite for it should be granted wider choice. The goal is to satisfy demand.