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Seeking Expert Advice: What's Your Take on SEBI's New Asset Class with a Minimum Rs.10 Lakh Ticket Size?

Ramalingam

Ramalingam Kalirajan  |8901 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Aug 08, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more
shakir Question by shakir on Jul 17, 2024Hindi
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Hi sir. SEBI has come out with a new asset class with a minimum ticket size of 10 lacs. This asset class is in between MF and PMS. Pls share ur expert views on this

Ans: SEBI has plans to introduce a new asset class that lies between Mutual Funds (MF) and Portfolio Management Services (PMS). It has a minimum ticket size of Rs 10 lakhs. This development has significant implications for investors and the PMS industry.

Key Features

Minimum Investment: Rs 10 lakhs, making it more accessible than PMS but higher than mutual funds.

Management Style: Offers a blend of professional and personalized management similar to PMS, with the diversification seen in mutual funds.

Regulation: SEBI-regulated, ensuring transparency and investor protection.

Flexibility: Flexible investment strategies, akin to PMS, with the broad diversification of mutual funds.

Reporting: Provides detailed performance reports, enabling effective investment tracking.

Benefits

Professional Management: Managed by experienced fund managers, leveraging their expertise for better returns.

Diversification: Investments spread across various assets, reducing risk.

Personalization: Offers a personalized approach, considering investors' specific needs and goals.

Transparency: Regular and clear updates due to SEBI regulation.

Potential for Higher Returns: Strategic asset allocation can lead to higher returns compared to traditional mutual funds.

Considerations

Higher Minimum Investment: The Rs 10 lakhs minimum investment might be a barrier for some investors.

Risk: While diversification reduces risk, market volatility can still affect investments.

Costs: Management fees might be higher than mutual funds due to personalized services.

Lock-in Period: There might be a lock-in period, similar to some PMS products, restricting liquidity.

Comparison with PMS

Lower Entry Barrier: PMS requires a minimum investment of Rs 50 lakhs, whereas the new asset class requires only Rs 10 lakhs, making it more accessible.

Broad Investment Mandate: While PMS offers various investing strategies, the new asset class will not lag far behind, offering a wide range of investment options.

Personalization: Both offer personalized management, but the new asset class does so at a lower cost.

Costs: PMS generally has higher fees, while the new class might be more cost-effective.

Regulation: Both are regulated by SEBI, ensuring investor protection.

Comparison with Mutual Funds

Diversification: Both offer diversification, but mutual funds have a lower entry point.

Management: Mutual funds are managed by fund managers, but the new asset class offers more personalized management.

Costs: Mutual funds generally have lower fees, while the new class may have higher costs for personalized services.

Accessibility: Mutual funds are more accessible to small investors with lower minimum investment requirements.

Impact on the PMS Industry

Increased Competition: The new asset class, with a lower entry barrier, offers strong competition to PMS.

Lower Entry Barrier: PMS requires Rs 50 lakhs, while the new asset class needs only Rs 10 lakhs, attracting more investors.

Broad Investment Mandate: The new asset class offers diverse strategies similar to PMS, but at a lower cost.

Investor Shift: Investors might shift from PMS to the new asset class due to lower costs and minimum investment.

Final Insights

The new SEBI asset class offers a blend of mutual funds and PMS benefits. It provides professional management, diversification, and personalized services at a lower entry point. This makes it a viable option for many investors. While it poses a challenge to the PMS industry, it opens up new opportunities for investors seeking a middle ground. Evaluating your goals, risk tolerance, and investment horizon will help in making an informed decision.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Dear Sir, I am 43 yrs old, and want to generate a corpus of 8 crs minimum at the age of 60, My current investment is around 1.40 crs in shares, around 40 lacs in EPF, and have recently started 1 lacs SIP per month in the below scheme, Franklin India Prima fund Regular plan Growth - 25K P/m, Parag Parikh flexi cap fund Regular plan growth - 25 K PM, ICICI Prudential Small cap fund Retail plab growth - 25K PM, DSP Black Rock Mid cap fund - Regular plan growth - 10 K PM, Kotak Multicap fund regular plan growth - 15K PM, Have my regular EMI of 1.1 Lacs P/m which goes from my salary and balance is used for kids education and monthly household expenses. Please suggest is this investment OK or i need to change it, Please note will be spending almost 70~80 Lacs between 2027 to 2030 for my son higher education.
Ans: It sounds like you're diligently planning for your future, which is commendable. At 43, aiming for a substantial corpus by 60 is a thoughtful goal. Your current investments show a balanced approach towards growth, which is a positive sign.

Considering your EMI commitments and impending expenses for your son's education, it's essential to assess the balance between your investments and financial responsibilities. Have you factored in inflation and potential market fluctuations in your projections? Remember, life is unpredictable, and plans may need adjustments along the way.

Your SIPs are a good start, but it might be worth reassessing the allocation to ensure it aligns with your long-term goals and risk appetite. A Certified Financial Planner would advise periodic reviews and adjustments to stay on track.

Given the upcoming educational expenses, perhaps revisiting your monthly allocations and exploring options to optimize your portfolio could be beneficial. It's all about striking the right balance between present commitments and future aspirations.

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Ramalingam

Ramalingam Kalirajan  |8901 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jun 25, 2024

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Sir, I have started two new SIPs ( @4K each) through MF just in last month, namely Quant Mid cap and Quant Large & Mid cap. Including these two presently I am continuing 60K of SIPs in different MFs for last 1 yr. Also had a plan to start a new SIP of 6K through Quant ELSS fund. But, after todays news of SEBI on Quant MF, I am confused. Should I stop the said one month old two funds and not to start ELSS or what? I have partially decided to continue with existing two funds and carefully watch on the situation for one/two year and not to start new MF with Quant. What should I do? Pls suggest.
Ans: First of all, commendations on your dedication to investing and planning for your financial future. Your efforts in consistently investing through SIPs are commendable. I understand your concern regarding the recent SEBI news about Quant Mutual Funds. Let’s address your queries and develop a comprehensive approach to your investment strategy.

Current SIP Investments
Your commitment to Rs 60,000 in SIPs over the last year is a strong start. SIPs offer the advantage of rupee cost averaging and can help in building a substantial corpus over time.

Evaluating Recent Investments
Given your recent start with Quant Mid Cap and Quant Large & Mid Cap funds, and the news about SEBI’s stance on Quant MF, your concerns are valid. Here’s a detailed analysis:

Market and Regulatory Sentiments: Regulatory actions can sometimes create uncertainty. However, it’s important to understand the specifics of SEBI's concerns and how they might impact the fund's performance and management.

Fund Performance: Before making any decisions, evaluate the historical performance of these funds. Look at their consistency, returns, and how they have managed risks.

Fund Management: Assess the expertise and track record of the fund managers. Effective management can often navigate through regulatory and market challenges.

Deciding on Continuation or Stopping SIPs
Continue Monitoring
Your decision to continue with the two existing funds while monitoring the situation is prudent. Here’s why:

Long-Term Perspective: Equity investments, especially in mutual funds, are meant for the long term. Short-term fluctuations or news should not drastically impact long-term strategies.

Performance Review: Regularly review the performance of these funds over the next 6-12 months. Evaluate them against their benchmarks and peer funds.

Adjust if Needed: If you notice consistent underperformance or if regulatory issues significantly impact the fund, consider reallocating to more stable funds.

New SIP in Quant ELSS
Considering the SEBI news, it’s understandable to be cautious about starting a new SIP in Quant ELSS. Here’s an alternative approach:

Diversification: Instead of putting all your SIPs in Quant funds, consider diversifying across different fund houses. This spreads your risk and can provide stability.

Evaluate Other ELSS Funds: Look for other ELSS funds with strong track records, good management, and consistent performance. ELSS not only offers tax benefits but also has the potential for good long-term returns.

Advantages of Actively Managed Funds
Actively managed funds are beneficial for several reasons:

Expertise: Fund managers actively make decisions to maximize returns and minimize risks.

Flexibility: These funds can adapt to changing market conditions, unlike index funds which replicate market performance.

Disadvantages of Direct Funds
While direct funds have lower expense ratios, there are notable disadvantages:

Lack of Professional Guidance: Without a Certified Financial Planner, managing direct funds can be challenging.

Time-Consuming: Monitoring and adjusting investments require significant time and expertise.

Recommended Strategy for Your SIPs
Diversified Portfolio
A well-diversified portfolio across different fund categories can enhance returns and reduce risks. Consider these steps:

Large Cap Funds: These funds invest in well-established companies with a stable growth trajectory.

Mid Cap Funds: They invest in medium-sized companies with potential for high growth.

Small Cap Funds: Suitable for aggressive investors, these funds can offer high returns but come with higher risks.

Balanced or Hybrid Funds: These funds offer a mix of equity and debt, providing stability and growth.

Regular Reviews
Schedule regular reviews with your Certified Financial Planner to ensure your portfolio remains aligned with your financial goals and market conditions. Adjustments may be necessary based on performance and market changes.

Building a Robust Investment Plan
Your goal should be to build a robust investment plan that can withstand market fluctuations and regulatory changes. Here’s how:

Emergency Fund
Maintain your emergency fund of Rs 15 lakhs. This provides a safety net for unexpected expenses and ensures you don’t have to dip into your investments prematurely.

Goal-Based Investments
Children’s Education: Continue investing through SIPs in diversified equity funds for long-term growth. This will help accumulate the required corpus for their education.

Retirement Planning: Invest in aggressive growth funds for your retirement goal. Starting early and maintaining consistency will leverage the power of compounding.

Importance of Staying Informed
Stay informed about market trends and regulatory changes. Knowledge empowers you to make informed decisions and adapt to changes effectively.

Role of a Certified Financial Planner
A Certified Financial Planner can provide invaluable guidance. They can:

Customise Portfolio: Tailor your investments based on your financial goals, risk tolerance, and market conditions.

Regular Monitoring: Continuously monitor your portfolio and make necessary adjustments.

Risk Management: Help you navigate market and regulatory risks effectively.

Final Insights
Your proactive approach to investing is commendable. Continuously monitoring and reviewing your investments is crucial. While the SEBI news about Quant MF is concerning, maintaining a long-term perspective is important. Diversify your portfolio to mitigate risks and ensure you are investing in well-managed funds.

Stay informed, regularly review your portfolio, and seek guidance from a Certified Financial Planner. This comprehensive approach will help you achieve your financial goals and secure your future.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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