SEBI approves new and safe asset class for mutual funds

The The SEBI Board has approved the launch of a new investment product within the existing common investment fund framework aims to limit the spread of unregistered people AND illegal investment programs/entitiesWhich they often promise an unrealistic high returns AND exploit investors‘ expectations in order to obtain better yields, leading to potential financial risks.

According to the markets regulator, the new asset class aims to fill the gap between mutual funds and portfolio management services in terms of flexibility in portfolio construction.

According to SEBI, the new mutual fund product aims to provide investors with a professionally managed and well-regulated product that offers greater flexibility and greater risk-taking opportunities for larger transactions, while providing adequate security and risk-mitigation measures.

“For example, the security features of the new product will include no leverage, no investment in unlisted and unrated instruments beyond those already permitted for mutual funds, and derivative exposure limited to 25 percent of AUM for purposes other than hedging and recovery balance.

The offerings under the new product will be called “investment strategies” to maintain a clear distinction from programs offered under traditional mutual funds.

The minimum investment limit for the new product will be Rs 10 lakh per investor across all new product investment strategies in a particular AMC.

Meanwhile, according to reports, a draft circular for stricter derivatives regulations is expected to be issued soon as individual investors in the futures and options (F&O) market are facing heavy losses.

According to the latest SEBI report, the cumulative losses of individual investors in the stock futures and options segment have crossed Rs 1.8 lakh crore in the three-year period between FY22 and FY24. More than nine out of ten individual investors operating in the stock futures and options segment continues to suffer significant losses.

SEBI Chairperson Madhabi Puri Buch also mentioned at a recent event that the market regulator is close to introducing regulations for MF lite and has held detailed consultations on the same.