Mutual Funds vs. AIFs

1. The Securities and Exchange Board of India (SEBI) is introducing a new investment option aimed at investors who are willing to accept higher risk in pursuit (search) of greater returns.
2. This category is designed to fill the gap between conventional mutual funds and more exclusive services such as portfolio management.

1. A mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt.
2. The combined holdings of the mutual fund are known as its portfolio.
3. Portfolio management is the process of managing individuals’ investments so that they maximise their earnings within a given time frame.
4. Furthermore, such practices ensure that the capital invested by individuals is not exposed to too much market risk.

Alternative Investment Funds (AIFs) and Mutual Funds

1. At present, investors have limited choices. Mutual funds are accessible with lower minimum investments but come with a lower risk profile.
2. On the other hand, Portfolio Management Services (PMS) and Alternative Investment Funds (AIFs) are tailored for high net-worth individuals, requiring higher minimum investments and accommodating a higher risk tolerance.

1. Portfolio Management Services (PMS) are professional financial services that help investors manage their investments and maximize returns while minimizing risk.
2. PMS services are customized to meet an investor's financial goals, risk tolerance, and investment expectations.
3. An Alternative Investment Fund (AIF) is a type of investment vehicle in India that pools together funds from investors and invests them in accordance with a defined investment policy to benefit the investors.
4. AIFs can include private equity, venture capital, hedge funds, and other forms of investment funds that do not fall under the typical categories like mutual funds or collective investment schemes.

Feature	Mutual Funds	PMS/ AIFs
Investors	Small investment amounts (Retail investors)	Large investment amounts, typically over ₹50 lakh (High Net-worth Individuals)
Risk	Comparatively lower	Higher risk tolerance
Nature of Products	Standard products for all investors	Customized products
Regulation	Strictly regulated by SEBI	Regulated by SEBI, but with less stringent oversight compared to mutual funds

Emergence of Unregulated Investment Products

1. SEBI has identified that the absence of certain regulated options has led some investors who are willing to invest substantial amounts and have a higher risk tolerance to fall victim to unregulated investment schemes.
2. Such schemes promise unrealistic returns to these investors.
3. The proposed solution by SEBI is a regulated investment product.

Key Features of the New Asset Class Proposed by SEBI

1. Investment Size: The minimum investment required is Rs. 10 lakh, which is considerably lower than the minimum investment for other high-risk options like PMS or AIFs, where the starting point is typically Rs. 50 lakh.
2. Returns and Risk: While this new product carries a higher risk compared to mutual funds, it also offers the potential for higher returns. Importantly, it will be regulated, unlike some unauthorized investment schemes.

3. Distinct Nomenclature: SEBI suggests using a unique name for this new asset class to clearly distinguish it from traditional Mutual Funds (MFs), Portfolio Management Services (PMS), Alternative Investment Funds (AIFs), Real Estate Investment Trusts (REITs), and Infrastructure Investment Trusts (InvITs).

Securities and Exchange Board of India (SEBI) SEBI is a statutory body established in 1992 under the Securities and Exchange Board of India Act, 1992, with the mandate to protect investors' interests and oversee the securities market. The headquarters of SEBI is located in Mumbai, with regional offices situated in Ahmedabad, Kolkata, Chennai, and Delhi. Prior to SEBI's creation, the capital markets were regulated by the Controller of Capital Issues under the Capital Issues (Control) Act, 1947. In 1988, the government formed SEBI as the regulatory authority for capital markets through a resolution. Initially set up as a non-statutory body, SEBI gained autonomy and statutory powers following the enactment of the SEBI Act in 1992. The SEBI Board consists of a chairman along with full-time and part-time members. SEBI also forms committees as necessary to address specific issues. The Securities Appellate Tribunal (SAT) was established to protect the rights of individuals affected by SEBI's decisions. It consists of a Presiding Officer and two Members. SAT possesses the powers of a civil court, and appeals against its decisions can be directed to the Supreme Court.

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