Sebi looks to introduce new 'high-risk' investment vehicle, says Buch

Securities and Exchange Board of India (Sebi) Chairperson Madhabi Puri Buch on Friday said the regulator was looking to introduce a new investment vehicle that would stack up between mutual funds (MFs) and portfolio management services (PMS) and cater to investors inclined to make riskier bets.

Speaking on the sidelines of a Confederation of Indian Industry (CII) event, the chairperson said the regulator was discussing the proposal with industry and other stakeholders. 

“MFs are highly retail-oriented. Then you have PMS and AIFs (alternative investment funds). In this spectrum, we feel there is room for an additional asset class somewhere between MFs and PMS. That’s what we are discussing with the industry, what will be that asset class and what will it look like,” Buch said.

Earlier in October, Sebi had written to the Association of Mutual Funds in India (AMFI), seeking views of individual asset management companies (AMCs) on a new MF category to cater to investors who are looking for an intermediate investment product between MFs and PMS. 

The proposed category will likely have a higher minimum investment threshold but lower than that of PMS. Also, it may have relaxed norms to generate high returns. The minimum ticket size for PMS is Rs 50 lakh, while systematic investment plans in MFs can be as low as Rs 100. 

On the recent penalisation from the Securities Appellate Tribunal (SAT) for delay in defreezing holdings of Kirloskar family members, Buch said the delay was ‘unacceptable’ and the regulator had initiated a full process review.

“Sebi was responsible, Sebi was accountable. We deeply regret what happened. Within a month or 45 days, we will revamp the process so that the risk of this happening again is completely minimised,” she said. 

In response to a question on why the pro-rata system of initial public offer (IPO) allotment was stopped, the chairperson said the level of oversubscription in IPOs was getting inflated because of it and it was not helping in the price discovery. 

“The level of oversubscription in IPOs to our mind was getting inflated because of the pro-rata mechanism. For instance, someone wanting 100 shares, the investment banker will go to the client and ask the client to subscribe for multiple of what was needed and the banker would ask to apply for 2,000. Therefore, the price discovery mechanism was being corrupted and the process was leading to a certain unnatural... price discovery,” she said.

Buch also said Sebi was engaged with investors, including a large number of foreign investors, retail investors, and the government to make investments in REITs (Real Estate Investment Trust) and InvITs (Infrastructure Investment Trust) easier. 

“We think REITs and InvITs are very good products for retail investors as they have the ability to give you inflation-proof income. The government would (also) like to get more and more funding from REITs and InvITs. So we are engaged with them (investors) to see what it is they need in (terms of) the regulations,” she said.