Sebi’s ‘investment Strategies’: India’s answer to liquid alternatives
India’s investment landscape is witnessing a transformative shift with the Securities and Exchange Board of India’s recent approval of a new asset class called ‘investment strategies’. This asset class aims to bridge the gap between traditional mutual funds and portfolio management services by targeting investors having a high risk-return appetite. It seeks to enhance portfolio flexibility while addressing the rise of unregistered investment schemes that promise unrealistic returns. This product resembles liquid alternative investments that are flourishing in the US and Canadian markets.
Liquid alternatives are investment products such as mutual funds and exchange-traded funds that use strategies similar to alternative investment funds in India. However, these are more liquid, easier to access, and regulated.
These products enable investors to access sophisticated and advanced investment strategies such as long-short equity (buying stocks whose prices are expected to increase and selling those that are expected to fall); managed futures (investing in futures contracts across asset class—commodities, currencies, etc.); market-neutral (maintaining balanced positions to minimize market risk); and event-driven approaches (investing based on events such as mergers and acquisitions). These strategies are typically available only to institutional investors and high net worth individuals.
Indian ‘investment strategies’ will enable investors to diversify beyond the traditional buy-and-hold model that defines conventional mutual funds.
This asset class offers greater flexibility and higher risk-taking capabilities for large investments while implementing safeguards such as no leverage (i.e., not borrowing funds to enhance
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