New Safe Asset Class Approved by SEBI for Mutual Funds

The Securities and Exchange Board of India (SEBI) has taken significant steps to enhance investor protection by approving a new investment product within the existing Mutual Fund framework. This initiative is primarily designed to tackle the rising concerns surrounding unregistered and unauthorized investment schemes that often lure investors with promises of unrealistic high returns. These schemes exploit investor expectations, leading to potential financial risks and losses.

The new asset class aims to bridge the existing gap between Mutual Funds and Portfolio Management Services, offering greater flexibility in portfolio construction while maintaining a high level of regulation. By introducing this product, SEBI seeks to provide investors with a professionally managed option that adheres to regulatory standards, thus ensuring safer investment avenues.

This innovative product, referred to as ‘Investment Strategies,’ is expected to come with robust safeguards. These include prohibitions on leverage and restrictions on investments in unlisted and unrated instruments, which are limited to those already permitted for Mutual Funds. Additionally, derivatives exposure will be capped at 25% of Assets Under Management (AUM) for purposes other than hedging and rebalancing. Such measures are intended to mitigate risks while allowing investors to pursue higher returns through professional management.

Furthermore, reports indicate that SEBI plans to issue a draft circular focusing on tighter regulations surrounding derivatives. This move comes in response to the alarming losses reported by individual traders in the futures and options market. According to recent data, the aggregate losses of individual traders in this segment exceeded ₹1.8 lakh crore over a three-year period from FY22 to FY24, highlighting the need for stricter regulatory measures.

In conclusion, SEBI’s introduction of a new Mutual Fund product not only provides investors with more options but also aims to establish a safer investment landscape by reducing the appeal of unauthorized schemes. With these new regulations and products, SEBI is taking proactive steps to safeguard the interests of investors in the ever-evolving financial landscape.