More bucks for bang For HNI investors

Sebi has moved ahead with its idea of allowing mutual funds to offer higher-risk products to a wider body of investors. Fancy investment products on offer by portfolio management services (PMS) and AIFs will be available at a reasonably low cut-off of ₹10 lakh. This should improve access among the investing community to quicker ways to increase wealth that have till now been restricted by the net worth criterion. Sebi's move is also in reaction to the phenomenon of unregulated PMS offerings, and is an acceptance of the demand for a more regulated structure for an emerging investment segment. The regulator conservatively chose to go ahead with MFs to offer the new investment product going by the track record of the industry in mopping up household savings for deployment in the capital market. Systematic investment plans - the overwhelmingly popular method by which retail investors are funnelling money into equities - will have to be offered by MFs offering the new investment products. They will, thus, have to tweak their risk management mechanism for such products keeping this in mind.

Sebi has chosen to offer a bottom-up approach to new investment products by plumping for MFs instead of PMS and AIF providers. The MF industry has the widest access to the investing community so the fancy investment products can be popularised faster than if they were offered by PMS and AIF providers. Also, it faces a higher degree of settled regulatory scrutiny while disclosure is evolving for the PMS and AIF segments. Oversight of these segments should improve as competition emerges from the MF industry for market share. It also helps to squeeze risks into the top of the investment cone while limiting its spillover through professional management in the broad lower layer where losses can influence investment behaviour more significantly.

Fancy MF offerings can draw more savings to the equities market. The impact of improving financial risk management to lower the cost of capital should be positive for the real economy.