The Securities and Exchange Board of India (SEBI) has put forward a proposal to introduce a new category of mutual funds, offering investors the opportunity to earn higher returns with higher risk.
SEBI has communicated this proposal to the Association of Mutual Funds of India (AMFI).
According to a letter seen by Moneycontrol, SEBI had initially discussed this proposal during an AMFI meeting and subsequently issued a letter to AMFI regarding its implementation.
The primary objective is to provide an alternative investment option for investors seeking higher returns, thereby potentially reducing the demand for high-risk products such as Portfolio Management Services (PMS).
Benefits of the Proposed High-Risk Schemes:
Higher Risk, Potential for Higher Returns: This new category of mutual funds would carry higher risk compared to traditional mutual funds, but in return, investors could have the potential to earn higher returns.
It aims to address the growing demand from investors looking for opportunities to outperform the market.
Objective of the Proposal: SEBI’s objective is to ensure that investors no longer feel compelled to invest in individual stocks based on the advice of unregistered advisors or rely on high-risk investment products to achieve higher returns.
Instruments and Investment Strategies: The proposal is currently in its early stages and has not yet identified the specific instruments in which these schemes will invest.
However, it’s likely that these schemes may be allowed to invest in small-cap, mid-cap, micro-cap, and mini-cap stocks.
They may also be permitted to employ derivatives and high-risk leverage strategies.
Industry Concerns: Some mutual fund industry executives have expressed concerns about the potential risks associated with these high-risk schemes.
They worry that if a scheme in this category defaults or loses money due to its high-risk strategy, it could negatively impact the reputation of the fund house and the broader mutual fund industry.
Retail Investor Protection: SEBI intends to implement measures to protect retail investors who might be interested in this new category of schemes.
This might include setting a minimum investment limit for these schemes.
Rising Investor Confidence: The mutual fund industry in India has witnessed increasing investor confidence, with substantial investments made through Systematic Investment Plans (SIPs).
This proposal reflects SEBI’s efforts to provide diversified and innovative investment options while ensuring investor protection.
The proposal for a new high-risk mutual fund category is still in its early stages, and the response from the Rs 45 lakh crore mutual fund industry remains to be seen.
However, SEBI’s aim is to meet the evolving needs and preferences of investors while maintaining transparency and regulatory safeguards.
