SEBI may introduce a high-risk, high-return MF

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Market watchdog SEBI is contemplating the introduction of a new type of mutual fund that would offer investors a chance to earn high returns, albeit with high associated risks. According to media reports, SEBI plans to rein in investors who are chasing high returns and often turn to unregistered financial advisors or portfolio management services, which are risky and impose hefty fees, for the same. In this regard, SEBI has sought comments from the Association of Mutual Funds of India (AMFI). 

Since both PMS and unregistered financial advisors operate in a gray waters, when it comes to regulations, SEBI aims to pull in outgoing investors within the tightly-regulated realm of mutual funds. 

While matters pertaining to this are at an extremely nascent stage, it is expected that such high-risk mutual funds will invest heavily in small-cap, micro-cap, mini-cap and mid-cap sectors, along with allocations in derivatives as well. 

This comes at a time when new SIP registrations are steadily climbing, indicating a growing investor appetite for systematic, disciplined and long-term investing. In Sep, 2023, around 36.77 lakh new SIPs were registered, a record-high. Even the total assets under management (AUM) by means of SIP touched Rs 8.7 trillion, inching up from Rs 8.4 trillion in August, 2023. Even SIP contributions stood at an all-time high of Rs 16,042 crores.

However, experts are skeptical as to how this new, high-risk mutual fund would impact the overall image of the Rs 46 lakh crore Indian mutual fund industry. If these funds lose money due to their inherently risky strategies, it would adversely affect the image of all mutual funds, which have been advertised as being synonymous to being secure, safe and relatively less risky avenues of investments. 

In order to ensure some level of gatekeeping, the proposed fund is likely to have a high barrier of minimum investment required. While this may not be enough to stop naive, gullible small investors from trickling into the fund, it may sieve in investors with high net worth and solid knowledge of the markets. Notably, a minimum of Rs 50,00,000 is needed to avail portfolio management services (PMS).