Entities promising hefty returns to gullible investors from ‘offbeat’ avenues like art, antiques and real estate may soon come under the scanner of Sebi, which is framing a new set of rules for ‘alternative investments’. These alternative or offbeat investments are generally offered by wealth or portfolio managers in schemes focused on real estate, art works, antiques and even coins and stamps. India currently classifies most of these schemes as ‘collective investment schemes’, which are regulated by Sebi, but a need has been felt to have a separate set of regulations for ‘alternative investments’. With a view to safeguard investors from falling prey to dubious schemes of portfolio managers, Sebi will soon come out with a separate set of guidelines for alternative investments.
The issue was discussed at Sebi’s board meeting last evening, after which Chairman U K Sinha said the regulator would frame regulations to govern alternative investments and portfolio wealth managers. Globally, alternative investments are quite in vogue among rich investors, who are estimated to allocate 5-10 per cent of their investment portfolio on these products. As per the annual World Wealth Report of Cap Gemini and Merrill Lynch Wealth Management, alternative investments are expected to account for nearly 9 per cent of high net-worth individuals’ financial assets in 2011.
These investments used to account for as much as 10 per cent of HNIs’ financial assets in 2006, but had fallen to as low as 6 per cent by 2009 due to the economic slowdown. While Sinha did not disclose what kind of alternative investments would fall under the new regulations, such schemes generally include those investing in art works, antiques, coins and stamps, as well as a host of other instruments other than popular avenues like stocks, commodities and derivatives. At times, these schemes offer hybrid products, which target both traditional and alternative investments. Sebi regulates investments in stocks, mutual funds, debt securities, derivatives and mutual funds, among others, while there is a separate regulator for commodities.
However, India does not have separate regulations for alternative investments, which could include all investment avenues other than traditional ones like stocks, commodities, debt securities, derivatives and mutual funds. In the recent past, there has been a mushrooming of portfolio managers offering schemes designed for investing in avenues other than traditional products like stocks and commodities, given the volatility in these markets. However, investors are exposed to a high level of risk in the absence of any clear rules for ‘alternative investments’. The new rules would also apply to the estimated USD 1 trillion wealth management industry.
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