New Asset Class or Specialized Investment Fund (SIF) Market regulator Securities and Exchange Board of India (SEBI) may soon bring a circular regarding which investment strategies it can offer to its clients. Moneycontrol has received this information from sources. According to the consultation paper, there are strategies like Inverse ETF and Long Short Ones under this. According to sources, apart from the strategy, a decision also has to be taken on derivative exposure. Once the strategy is decided, the mutual fund industry will be able to decide which strategy to adopt.
PMS and AIF are waiting for circular
SEBI’s circular is awaited because at this time the situation will become clear for PMS (Portfolio Management Services) and AIF (Alternative Investment Funds) whether they should take a mutual fund license to offer the product or not. Last year, when SEBI had introduced the idea of SIF through a consultation paper, discussions regarding it started among PMS and AIF players. Since SEBI earlier wanted only mutual funds to offer it, PMS and AIF were left out, but when the final regulations came in December, it was made clear that PMS and AIF can also offer SIF but after obtaining the mutual fund license. .
So will PMS and AIF take mutual fund license?
SEBI’s board approved the concept of SIF of minimum Rs 10 lakh in December last year. These were introduced as a product between mutual funds and PMS, which would be more risky and also flexible as compared to mutual funds. Currently, SEBI has made it mandatory for SIFs to obtain a mutual fund license, but PMS and AIF players feel that leaving aside the tax benefits, it is not of much benefit to them. The main reason for this is the uncertainty regarding the investment strategy at present.
Sushant Bhansali, CEO of Ambit Asset Management, says that the flexibility in the final regulations regarding SIF has reduced because there is a provision to invest only a maximum of 10 percent of the portfolio in any one company. This will reduce the ability to generate alpha. Initially this limit was 15 percent instead of 10 percent. According to sources, after the consultation paper came out, AIF body Indian Venture and Alternative Capital Association (IVCA) had asked SEBI to grant separate license to Category 3 AIF managers for SIFs, but SEBI refused and said that it will do it for mutual funds. Will keep it under the fund only.
Talking about tax benefits in SIF, since it will be launched by mutual funds, it will have lower tax liability as compared to Category 3 AIF. The reason for this is that the investor will have to pay tax on the income earned in this and the fund will not have to pay any tax. For example, investors in equity mutual funds will have to pay tax at the rate of 12.5 percent on long-term capital gains and 20 percent on short-term capital gains. Whereas in case of Category 3 AIF, tax liability is up to 40 per cent at the fund level.
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