Sebi writes to AMFI for a new ‘high-risk’ category of mutual funds, seeks views from industry experts

The Securities and Exchange Board of India (Sebi) has written to the Association of Mutual Funds of India (AMFI), the mutual fund industry's trade body in India, to propose a new mutual fund category for high-risk funds that offers investors a chance to earn higher returns. The funds in the proposed segment will be allowed to invest in long-short strategies, junk bonds and microcap stocks.

At present, the existing five categories as per their risk factor are — low, low to moderate, moderate, moderately high, and high.

In its letter to AMFI, Sebi has sought the industry's views about the structure of the proposed scheme and the asset allocation. The industry has also been asked to recommend if any relaxations are required in the current regulatory requirements. The fund houses have also been asked to recommend the minimum investment size of the funds.

Industry sources told CNBC TV18 that this move is aimed at making high-risk, high return Portfolio Management Services (PMS) accessible to retail investors. At present, PMS funds have a minimum ticket size of Rs 50 lakh which is too high for most retail investors.

Sebi had asked AMFI to submit comments from the industry by October 25. However, the industry body is still in consultation with the fund houses and hasn’t submitted the responses, the report said.

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(AMFI) recent data showed that equity mutual fund inflows slipped month-on-month and were at Rs 13,857 crore in September 2023. The asset under management (AUM) of the mutual fund industry stood at Rs 46.58 lakh crore as of September 30. The equity AUM contribution shot up marginally to Rs 19.08 lakh crore from the previous month's Rs 18.6 lakh crore.

Mid and smallcap funds have outperformed large-cap funds and ELSS funds or the tax-saving funds in September. Smallcap fund inflows stood at Rs 2,678 crore, a reduction from the Rs 4,265 crore recorded in August. Midcap funds, while still attracting investments, saw a decrease in inflows, from Rs 2,512 crore to Rs 2,001 crore. Large caps saw an outflow of Rs 110.6 crore as compared to Rs 349 crore of outflows in August.

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