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India regulator proposes new, higher risk investment class

Sebi says the new product category will provide investors with regulated investment products with higher risk-profile
By Goh Thean Eu   
July 23, 2024

India’s securities regulator is proposing to introduce a new class of investments offering products with higher risk and higher minimum investments than typical mutual funds.

Investments in India are currently categorised into three classes: mutual funds, which can cost as little as 100 rupees (US$1.20); portfolio management services for a minimum investment of 5 million rupees; and alternative investment funds at a minimum 10 million rupees.

“The proposed new asset class is aimed at curbing the proliferation of unregistered and unauthorised investment products,” the Securities and Exchange Board of India (Sebi) says in a consultation paper seeking public feedback published on July 19.

“Such schemes/entities often promise unrealistically high returns and exploit the investors’ expectations for better yields, leading to potential financial risks. Therefore, a new asset class would provide a regulated and structured investment suited to the investors in this segment.”

According to the regulator, the new investment class is aimed at bridging the gap between mutual funds and portfolio management services.

The paper also sets out requirements on who can sell the new products.

Sebi is proposing that only mutual fund companies which have been operating for at least three years be allowed to offer the products.

The regulator also wants chief investment officers for the new investment class to have at least ten years of investment experience and manage over 50 billion rupees of funds.

The consultation period on the proposals ends on August 6.