How is Sebi’s new asset class different from mutual funds, PMS and AIF?

Sebi‘s new asset class introduces a unique avenue for investors, differentiating it from existing investment structures such as mutual funds, portfolio management services (premenstrual syndrome), and alternative investment funds (FIA). The main difference lies in its investment strategy and risk profile.

Unlike mutual funds, which pool resources from multiple investors for diversified portfolios, or PMS, which offers customized portfolios, Sebi’s new asset class enables structured and innovative investments in alternative assets. It also differs from AIFs by offering lower barriers to entry, facilitating broader investor participation.

Key Differences Between SEBI’s New Asset Class and Existing Products (Mutual Funds, PMS and AIF)

1. Investment strategy: Mutual funds pool investments for diversified portfolios, while SEBI’s new asset class can focus on specific sectors or alternative investments, offering tailored exposure to niche markets.
2. Entry barriers: Unlike PMSs and AIFs, which often require high minimum investments (Rs 50 lakh for PMS, Rs 1 crore for AIFs), the new asset class can have a minimum amount of Rs 10 lakh. Mutual funds have a minimum amount as low as Rs 100.
3. Regulation and risk: AIFs are largely deregulated compared to mutual funds and PMS, while the new asset class is under stricter supervision by SEBI, focusing on transparency and risk management.
4. Customization and control: PMS offers individualized portfolios, while mutual funds and AIFs bring investors together. SEBI’s asset class can balance between customized investment strategies and standardized offerings like mutual funds.
5. Liquidity: Mutual funds offer relatively high liquidity, while AIFs and PMSs often require longer lock-in periods. The new asset class can offer flexible liquidity options, bridging the gap between these offerings.

What does each of these investment avenues mean?

New asset class from SEBI

SEBI’s new asset class is an upcoming investment vehicle designed to offer a distinct alternative to traditional asset classes such as mutual funds (MFs), portfolio management services (PMS) and alternative investment funds (AIFs). The new product offerings will be called “Investment Strategies”, to maintain a clear distinction from the schemes offered in traditional mutual funds. The new product aims to add depth and variety to the country’s investment landscape through a new asset class.

Mutual funds (MF)

Mutual funds pool money from multiple investors to invest in stocks, bonds or other securities. They are highly regulated, offer diversification and are accessible to a wide range of investors, making them one of the most popular investment vehicles. MFs are suitable for those seeking lower risk and ease of management.

Portfolio Management Services (PMS)

PMS offers customized portfolio management to wealthy investors, with a minimum note of Rs 50 lakh. It provides personalized attention, allowing investors to tailor their portfolios based on risk appetite and objectives. While they provide more control than mutual funds, PMSs often come with higher fees and risks.

Alternative Investment Funds (FIA)

AIFs are privately pooled investment funds and involve investments in real estate, hedge funds, private equity, etc. They are open to sophisticated investors with a minimum entry limit of Rs 1 million. AIFs are divided into three categories (high risk, moderate risk and lower risk funds) and are less regulated compared to mutual funds.

Each of these investment vehicles offers unique benefits and risks, and SEBI’s new asset class is expected to fill gaps or create new opportunities within the Indian financial ecosystem.