The new asset class suggested by the Securities and Exchange Board of India (Sebi) is expected to bring innovative investment products and strategies into the market. This change could motivate some investors to move away from existing high-risk options like portfolio management services (PMS) and alternative investment funds (AIFs).

According to SEBI’s consultation paper, this initiative aims to provide regulated, higher-risk investment opportunities while reducing the prevalence of unauthorized schemes. The new investment asset will be organized within the mutual fund (MF) framework, featuring updated branding and specific relaxations of existing MF regulations.

SEBI has proposed:

The launch of a new asset class targets investors interested in allocating between ₹10 lakh and ₹50 lakh across diverse investment strategies, such as Long-short equity and Inverse ETFs. 

A minimum investment of Rs 10 lakh will be allowed for these products, which is below the Rs 50 lakh threshold for portfolio management services (PMS) and the Rs 1 crore minimum for alternative investment funds (AIFs).

Mutual funds have a minimum investment requirement of just ₹500, with no upper limit.

Investors will have access to various systematic plans, such as Systematic Investment Plans (SIP), which enable them to invest in derivatives or derivative strategies for market exposure.

To distinguish this new asset class from traditional mutual funds and other investment products such as Portfolio Management Services (PMS), Alternative Investment Funds (AIFs), and Real Estate Investment Trusts (REITs), and Infrastructure Investment Trusts (INVITs), it will be assigned a distinct name.

SEBI’s consultation paper emphasized the necessity of addressing the rise of unregistered and unauthorized investment products.

Comparing the new asset class with PMS and AIF.”
Experts have been expressing their opinions on the new asset class and its potential impact on investors.

According to Value Research’s blog: “The proposed asset class introduces several relaxations in portfolio building. These include an increased single issuer limit for debt securities (20 percent of assets, up from 10 percent), elevated credit risk-based single issuer limits for various credit ratings, and a higher ownership threshold for paid-up capital with voting rights, increasing to 15 percent from the previous 10 percent. This new class also allows for greater equity investments in a company, rising to 15 percent from 10 percent, and doubles the limits for investments in REITs and InvITs. Furthermore, sector-specific limits for debt securities have been increased to 25 percent, up from 20 percent.

1. Currently, PMS and AIF have minimal disclosure requirements.
In contrast, the new product is proposed to operate under rigorous regulatory standards, including monthly portfolio disclosures and publicly accessible
foundational documents similar to those of mutual funds.

Experts suggest that the enhanced transparency will likely draw investors to this new option over traditional PMS structures, allowing them to make more informed investment choices.

2. Instead of investing Rs 50 lakh in a single PMS, the same amount can now be spread across five new asset class products, facilitating better risk diversification.

3. Tax efficiency emerges as a crucial factor that could draw High Net Worth Individuals (HNIs) and Ultra High Net Worth Individuals (UHNIs) to this new investment opportunity. As the market awaits further information on tax regulations, it is expected that the taxation of this emerging asset class will correspond with the underlying assets.

“It can be anticipated that investments in the new asset class will be taxed in a manner similar to the current mutual fund structure, which benefits from pass-through status. If this assumption holds true, the new asset class will be more tax efficient compared to Category III AIFs, which currently do not enjoy pass-through status,” stated Rahul Jain, president and head of Nuvama Wealth.

Deepak Shenoy, Founder and CEO of Capitalmind, commented, “This consultation paper allows mutual funds to exceed the capabilities of PMS by enabling actions that PMS cannot perform, such as using derivatives, and doing so in a tax-efficient way. I hope that, eventually, PMS managers will also be allowed to develop strategies within this new structure. With a minimum investment of ₹10 lakh across the entire asset class, investors can explore various strategies, such as allocating smaller amounts to each one.”

Niranjan Avasthi, Senior Vice President at Edelweiss MF, noted, “The New Asset Class offers Asset Management Companies (AMCs) a compelling framework to pursue unique and high-risk, high-return investment strategies with increased flexibility. Most importantly, this can be achieved in a tax-efficient manner, potentially putting existing AIFs and PMS at a disadvantage.”

Domestic Mutual Fund Participation in F&O
In a LinkedIn post, Shenoy highlighted that the concept is promising because it will allow activities that individual investors and Foreign Institutional Investors (FIIs) can undertake, but which domestic mutual funds and PMS have been unable to pursue.

He further noted that this initiative will encourage domestic mutual fund participation in futures and options (F&O), which is essential for maintaining an institutional balance with FII involvement.

Feroze Azeez, Deputy CEO of Anand Rathi Wealth, added, “Considering the current enthusiasm around F&O, this development can empower participants with a high risk appetite to engage in the derivatives market with professional guidance. The new asset class’s involvement in derivatives will also foster an institutional balance alongside FII participation in the F&O market.”