The Association of Mutual Funds in India (AMFI) on Friday said that the industry is exploring a a new type of investment option that falls between Mutual Funds and Portfolio Management Services (PMS). However, the discussion is "at a very nascent stage and will go through the consultative approval process with the regulator."
"The intent is to introduce a new asset class which lies between Mutual Funds and PMS which may have flexible prudential norms, with a certain minimum ticket size. Hence any comparison with AIF / PMS is misplaced," AMFI said in a statement.
The reported plan involves relaxing certain regulations for this new category, permitting investments in specific products and strategies typically reserved for Portfolio Management Services (PMS) and Alternative Investment Fund (AIF) managers.
It's important to note that PMS and AIF are not accessible to retail investors due to their high minimum investment requirements of Rs 50 lakh and Rs 1 crore, respectively.
A person with knowledge of the matter said that SEBI is concerned that many investors- in the race to earn higher returns (out of greed)- rush to high-risk Portfolio Management Services and sometimes to unregistered advisors.
Instead, he quoted SEBI's thinking- if mutual funds launch such a high risk product, then investors would more likely stay with mutual funds, which itself is tightly regulated by SEBI.
This proposal was initially presented during a meeting with the Association of Mutual Funds of India (AMFI), and SEBI subsequently reached out to AMFI for internal deliberation regarding the feasibility of such a category.
"With reference to the recent media reports published regarding the proposal to introduce a new mutual fund category that comes with high-risk and higher minimum investment it is clarified that there is a whole spectrum of products in the securities market in terms of the risk and the applicability of prudential norms," AMFI statement said.
For instance, given the retail participation in Mutual Funds, prudential norms applicable to Mutual Funds are higher, as compared to others investment instruments, where prudential norms are flexible in line with ticket size of investment," AMFI said.
