Exclusive: Sebi proposes new sort of high-risk mutual fund to compete with PMS
Markets regulator Sebi has written to the Association of Mutual Funds in India (AMFI), in search of the views of particular person asset administration corporations (AMCs) on a brand new mutual fund class. The proposed class will cater to traders with a excessive danger urge for food and may have a better minimal funding. It may also have relaxed norms to generate excessive returns.
“Such funds might embody junk bonds or long-short methods,” stated an individual with data of the matter who didn’t want to be named. Another individual related to the mutual fund trade confirmed the information.
Currently, high-risk methods are housed in portfolio administration providers however they’ve a minimal ticket dimension of ₹50 lakh. Instead, they might be housed in mutual funds at a decrease ticket dimension however greater than abnormal mutual funds, a letter from AMFI to fund homes learn. Sebi requested AMFI to ship the trade’s responses by 25 October, in keeping with a letter from AMFI to fund homes, a duplicate of which Mint has seen. The responses ought to counsel relaxations for the brand new class and the minimal ticket dimension.
Portfolio administration providers (PMS) usually are not topic to the identical danger controls as mutual funds, similar to the ten% cap on publicity to particular person shares. This permits them to take concentrated bets on a couple of corporations. Alternative funding funds (AIFs) can use leverage to speculate and can even run long-short methods (to profit from each bull and bear markets). Numerous such freedoms usually are not obtainable within the tightly managed MF trade. Mutual funds usually are not allowed to take ‘naked short’ positions however are allowed to make use of derivatives as a hedge.
A mutual fund can be a extra tax-efficient car to deal with high-risk methods than a PMS, the place traders pay tax every time the fund is rebalanced. Experts are cautious on the event.
“I’m undecided if retail traders will perceive the chance inherent in such a class. Even as we speak, small cap funds are seeing big flows on the again of returns,” said Suresh Sadagopan, founder, Ladder 7 Financial Advisories.