MONEY
Specialised investment fund, the new asset class notified by the Securities and Exchange Board of India, is expected to attract investors who have the ability to take higher risks yet may not want to go the whole hog by investing in unregulated instruments. FE gets into the nitty-gritties of this new option WITH THE STOCK markets doing rather well for over four years, investors are flocking to make a quick buck. The rise in the number of discount brokerage firms, along with technological advancements like digital know-your-customer (KYC), Unified Payments Interface, and others, has helped expand the stock market ecosystem. Currently, there are over 182 million demat accounts, and it has been rising at a healthy clip of 4 million accounts a month in FY25. The new investors, mostly youngsters, have a higher penchant for risk-taking and are quite willing to put money in initial public offerings (IPOs), futures and options (F&O), SME IPOs, mid- and small-cap stocks, and even crypto-currencies. In such circumstances, the market regulator has been forced to take several steps to ensure that investor enthusiasm in these high-risk investment routes gets tempered. Specialised investment fund (SIF) is one of the many moves it has made to wean away investors from high-risk to moderate-risk instruments. FROM OCTOBER, EXCHANGES are paying uniform transaction fees to all brokers. Earlier, brokers bringing in higher volumes were charged a lower transaction fee. This encouraged, especially discount brokerages, to attract clients by charging them a lesser fee. Now, with the incentive gone, many brokerages have started charging clients. Sebi also brought in strict guidelines for F&O and SME IPO markets — both were seeing significant froth. In F&O, the contract size has been increased from Rs 5-10 lakh to Rs 15 lakh, and the number of expiries has been reduced to one per exchange, with an additional 2% charge as an extreme loss margin, among other things. For SME IPOs, a host of guidelines were issued last week. Companies wishing to list at SME exchanges will need to have an operating profit of Rs 1 crore in a minimum of two out of the three previous years, and the offer for sale cannot exceed 20% of the issue size, among other things. THE REGULATOR REALISES that while it is shutting down doors for high-risk-taking investors, it also needs to provide a route to some of them to ensure that money does not move out to asset classes like cryptocurrencies or riskier avenues like unauthorised or unregistered schemes or entities. The SIF fits in perfectly with the regulator’s scheme of things. The minimum investment of Rs 10 lakh isn’t too prohibitive compared to Rs 50 lakh for portfolio management systems or Rs 1 crore for alternate investment funds. But it is neither too low, such as Rs 1 lakh or Rs 2 lakh, that some investors can afford to lose. In addition, the money will be managed by professional investment managers in mutual fund houses that give the market regulator the additional comfort that its guidelines will be followed. The mutual fund industry is already seeing net monthly inflows of Rs 40,000 crore, with the systematic investment plan book hitting Rs 25,000 per month. SIFs WILL ENABLE MFs to implement advanced investment strategies through open-ended, closed-ended, or interval structures. With a minimum investment limit of Rs 10 lakh, SIFs allow asset managers to allocate up to 15% in a single security—50% higher than the 10% limit under MF schemes. For fixed-income strategies, exposures can now extend to 20% in a single issuer, with the possibility of increasing this to 25% through board approvals. The ceiling for debt schemes in the case of a single issuer is 10% . SIFs can invest 20%—double that of mutual funds—in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (INVITs), offering greater allocation flexibility. However, investment in derivatives as an investment strategy is still not allowed. Mutual funds can use it only for hedging and portfolio rebalancing purposes. The fund managers of SIFs must have the relevant National Institute of Securities Markets (NISM) certification. THE EXPENSE STRUCTURE will be similar to mutual funds. At present, an equity fund can charge a maximum total expense ratio (TER) of 2% for the first Rs 250 crore of assets under management. The cost comes down to 1.75% for the next Rs 1,250 crore and 1.60% for Rs 1,500-3,000 crore. There are three more slabs: Rs 5,000 crore, Rs 40,000 crore, and Rs 50,000 crore. The fund house can also charge other expenses. However, a class of investors—accredited—have been left out of this. They are a class of investors who understand various financial products and the risks and returns associated with them and, therefore, are able to take informed decisions.They are recognised by securities and financial market regulators across the globe. Sebi describes an institution or business entity trading securities through private placement as an accredited investor if their net worth is Rs 25 crore. Individuals who wish to qualify as accredited investors must have a liquid worth of Rs 5 crore and a total annual income of Rs 50 lakh. None
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