MUMBAI: In order to safeguard investors from falling prey to dubious schemes of portfolio managers, capital market regulator Sebi will soon come out with guidelines for alternative investments.
The issue was discussed at the Sebi board meeting here today, after which Chairman U K Sinha announced that the regulator will soon frame rules to govern alternative investments and portfolio wealth managers.
Although Sinha did not disclose the areas that will be included under the new regulation, alternative investment schemes generally cover art works, antiques, coins and stamps, as well as a host of other instruments besides popular avenues like stocks, commodities and derivatives.
The new rules would also apply to an estimated USD 1 trillion wealth management industry.
As part of the proposed regulatory framework for alternative investments, Sebi is already planning to set up an intermediary regulatory body with representation from among the wealth managers themselves.
The new rules would cover entities offering wealth management or investment advisory services across various asset classes irrespective of the different financial markets.
These would include stocks, commodities, fixed deposits, derivatives, insurance, mutual funds, private equity, pension funds as also alternative investment products such as funds investing in art works, antiques, coins and stamps.
For past few months, Sebi has been in consultation with the government,RBI and other financial regulators for framing a new set of rules for the wealth managers.
Given the size of the industry, and therefore a higher risk of large-scale frauds or manipulations, the new rules would also allow Sebi and RBI to impose strict penalties.
Although there are no official figures for it, the size of wealth management industry is pegged at about USD 1 trillion -- nearly double the size a couple of years ago.
While RBI and Sebi would be primarily responsible for compliance of the rules, help would be sought from other regulators, namely commodity regulator FMC, insurance watchdog IRDA and pension fund regulator PFRDA, whenever needed.
Sources said that Sebi also aims to frame a stringent set of rules for funds investing in art works, antiques, coins and stamps, with an aim to check black money flow into these products and safeguard the interest of genuine investors.
Sebi considers investment funds focused on art works, antiques, coins and stamps as "Collective Investment Schemes", which come under the ambit of the capital market regulator.
Fearing flow of illicit wealth into these funds and also a high level of risk posed by them to the general investors, Sebi is now considering framing a specific set of regulations for these funds.
Globally, art funds are very famous as alternative class of investments for rich investors and have started gaining ground inIndia over the past few years.
However, there are no specific rule in India for art and other such funds, which collect money from numerous investors, mostly high-networth individuals, to invest in art works, antique pieces as also old and rare coins and stamps.
Sebi has already begun a consultation process with stakeholders, including the centre and RBI, with an aim to frame the specific regulations for alternative investment vehicles this fiscal.
Sebi to frame regulation for alternative investments
CA ADITYA SHARMA (CA IN PRACTICE ) (16719 Points)
28 July 2011
CAclubindia
