India considers new mutual fund category

India’s asset management industry is considering plans to introduce a new high-risk, high-return category of mutual funds. The national regulator, the Securities and Exchanges Board of India (Sebi) has written to the Association of Mutual Funds of India (Amfi) to propose a new type of mutual fund that will offer retail investors the opportunity for higher returns. These same funds would also have more flexibility and a wider remit by being able to invest in long-short strategies, junk bonds and microcap stocks. Sebi has asked Amfi for its recommendations in minimum investment size and whether the current regulations would need to be relaxed to accommodate the proposal. Under current rules, portfolio management services (PMS) products and their higher-risk strategies have a minimum investment amount of US$60,000, a figure considered too high for the majority of retail investors. “Given the retail participation in mutual funds, prudential norms applicable to mutual funds are higher, as compared to other investment instruments, where prudential norms are flexible in line with ticket size of investment,” stated Amfi in response to the regulator’s proposal. “There are deliberations within the industry for an instrument that caters to investors looking for an intermediate investment product between mutual funds and PMS.” Amfi also stated that discussions are at a “very nascent stage” while the association goes through the consultative approval process with the regulator. ©2023 funds global asia

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