AMFI Clarifies on New High-Risk Mutual Fund Category

The Indian mutual fund industry body, the Association of Mutual Funds in India (AMFI), has said that the idea of introducing a new asset class, which lies between mutual funds and portfolio management services (PMS) and has flexible prudential norms, is at a very nascent stage.

Discussion at Early Stage

In a statement, AMFI clarified that the discussion is at a very nascent stage and will go through the consultative approval process through the regulator, the Securities and Exchange Board of India (Sebi).

Response to Media Reports

The statement came after media reports suggested that Sebi is in the process of formulating a new high-risk mutual fund category. It was reported that AMFI sought comments from asset management companies on the new mutual fund category, which is aimed at catering to investors with a high-risk appetite.

Clarification on Prudential Norms

Clarifying on the media reports, AMFI said that there is a whole spectrum of products in the securities markets in terms of the risks and the applicability of prudential norms. For instance, given the retail participation in mutual funds, prudential norms applicable to mutual funds are higher, as compared to other investment instruments, where prudential norms are flexible in line with the ticket size of investment.

Need for an Intermediate Investment Product

According to AMFI, there is a deliberation within the industry for an instrument that caters to investors who are looking for an intermediate investment product between mutual funds and PMS. The intent is to introduce a new asset class, which lies between a mutual fund and PMS, which may have flexible prudential norms, with a certain minimum ticket size. Hence, any comparison with AIF/PMS is misplaced, it added.

The introduction of a new asset class between mutual funds and PMS is still in the early stages of discussion and will need to go through the necessary regulatory approvals. AMFI has clarified that the intention is to create an investment product that caters to investors with a high-risk appetite and falls somewhere between mutual funds and PMS in terms of risk and prudential norms.