Sebi mulls hedge-fund like products for retail investors

India’s capital market regulator is proposing allowing

asset management companies

to offer hedge fund-like products for mom-and-pop investors as it steps up efforts to curb proliferation of unauthorized investment products.
The Securities and Exchange Board of India has proposed a “new asset class” that will lie between a traditional pooled investment vehicle like a mutual fund and discretionary portfolio management service, according to a consultation paper on its website.

This “new asset class” will include products like a long-short strategy and inverse exchange-traded funds where asset managers can pool investments from

retail investors

.
India’s burgeoning middle class and a booming stock market have in recent years spurred demand for investment products that allow investors to undertake higher risks for greater returns. In India, mutual funds are barred from undertaking positions in equity derivatives unless it is for hedging, while the entry barrier for portfolio management services is considered high.
“The absence of such an investment product appears to have inadvertently propelled the investors of this segment towards unregistered and unauthorized investment entities,” the regulator said in the consultation paper published Tuesday.

Sebi

has sought comments from the public until August 6.

The new pooled investment products will be akin to liquid alternative products in the US that were designed to allow individual and small institutional investors to invest in products that give traditional hedge fund-like returns, Sebi said.
Investors can invest a minimum 1 million rupees in such products, the regulator said. Sebi is also considering allowing investors to undertake systematic investments in these pooled products as long their total investment does not fall below 1 million rupees ($11,964).
The new products will enjoy a more relaxed investment criteria including taking positions in derivative products, enhanced exposure to single stocks and sectors and a larger outlay to invest in corporate bonds rated A and below.