India’s securities regulator, SEBI, is considering introducing a new category of mutual funds. These funds would carry higher risk but offer the potential for greater returns.
SEBI recently reached out to the Association of Mutual Funds of India (AMFI) about this proposal, as reported by Moneycontrol.
The Push for Higher Returns
SEBI’s aim is to provide investors with an alternative to high-risk products like Portfolio Management Services (PMS), which can be risky.
Many investors turn to unregistered advisors for stock recommendations, often resulting in losses.
SEBI believes that by offering high-risk mutual fund schemes, investors may not need to resort to these riskier alternatives to seek higher returns.
Details Still in the Works
The specific investments for these new schemes have not been finalized yet, as the proposal is still in its early stages.
Asset management experts suggest that these schemes could potentially invest in smaller-cap stocks, mid-cap stocks, micro-caps, and mini-cap stocks.
Additionally, they might utilize derivatives and high-risk leverage strategies. However, it’s essential to note that this proposal is currently under discussion,
and its potential impact on the Rs 45 lakh crore mutual fund industry remains uncertain.
Concerns from Mutual Fund Executives
Moneycontrol reached out to mutual fund executives for their perspective. They expressed concerns about the potential fallout if these high-risk schemes were to encounter losses.
Not only could it damage the fund house’s reputation, but it might also harm the broader mutual fund industry, as experienced during the difficulties faced by credit risk debt funds during the COVID-19 pandemic.
SEBI’s Approach
To address the high risk associated with these new schemes, SEBI plans to establish a minimum investment threshold.
The regulator aims to protect retail investors who are increasingly showing interest in mutual fund schemes.
In fact, there has been a surge in Systematic Investment Plan (SIP) investments, reaching Rs 16,000 crore in September.
As a result, the stock market appears less influenced by foreign fund sales, reflecting growing investor confidence in mutual funds.
