New Delhi: 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 Capgemini 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.

As part of the proposed regulatory framework for alternative investments, SEBI is already planning to set up an intermediary regulatory body with representation from 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.

For the past few months, SEBI has been in consultation with the government, RBI and other financial regulators for framing a new set of rules for wealth managers.

Given the size of the industry and, thereby, a higher risk of large-scale fraud or manipulation, the new rules could also allow SEBI and RBI to impose strict penalties.

Although there are no official figures available, the size of the 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 ensuring compliance with the rules, help would be sought from other regulators, namely commodity regulator FMC, insurance watchdog IRDA and pension fund regulator PFRDA, whenever needed.

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 flows into these products and safeguard the interests 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.

Globally, art funds are very famous as an alternative class of investments for rich investors and have started gaining some ground in India over the past few years.

These funds collect money from numerous investors, mostly high net worth individuals, to invest them into art works, antique pieces and old and rare coins and stamps.

SEBI has already begun a consultation process with various stakeholders, including the central government and RBI, with an aim to frame the specific regulations for these alternative investment vehicles this fiscal.

Earlier, in 2008, a time when the art funds first became visible in India, the regulator had issued a public notice to warn investors against putting their money into art funds or schemes of entities not registered with SEBI.

At that time, SEBI had found art funds to be 'collective investment schemes' and said many of them were being launched by various entities without registering with SEBI.

As per the existing regulations, only an entity registered with SEBI as a Collective Investment Management Company is allowed to offer any collective investment fund or scheme, including those focused on art works.