Metaverse Fund may face trouble from SEBI

“If a fund has an underlying which is not recognized as a security under the SEBI Act, the regulator will not approve it. Since the fund will be open to retail investors, SEBI cannot allow investment in unregulated assets/underlying assets.”

A similar offer had to be withdrawn last year to invest in crypto. Invesco Mutual Fund proposes to launch the Invesco CoinShares Global Blockchain ETF Fund of Funds. The new fund offer was later withdrawn, given that India’s regulations on crypto investments were still evolving. Invesco had then said that such a launch would be premature.

In December, top SEBI officials advised mutual funds against offering any funds on crypto as the regulatory framework was still evolving.

“While it is good that such new products in mutual funds are coming into the market for investors, it will boil down to how SEBI perceives it. We would not be surprised if these offerings go down the Invesco route. There is speculation that the regulator may delay in giving its comments. SEBI will also examine what would be the actual underlying in such a case. We will have to see how SEBI reacts or the regulator comes out with new guidelines for fund houses. Or not.

According to its offer letters, Navi’s Metaverse ETF Fund of Funds (FOF) will invest in foreign ETFs, which provide exposure to companies that benefit from advances in the metaverse space. The FOF of Aditya Birla’s Blockchain and Virtual Digital Asset (VDA) ETF will invest in units of global ETFs focused on global blockchain themes (including VDA). Navi has also proposed to launch IoT ETF Fund of Funds.

The Metaverse is a digital space where people can socialize, work and play. ETFs that focus on the metaverse can be a portfolio of firms involved in developing the metaverse. There are already such ETFs globally. Navi’s Fund of Funds proposes to invest in these ETFs. Navi’s FoF will be benchmarked against the Collective Metaverse Theme Index, which includes firms such as Apple Inc. and Meta Platforms.

According to its plan information document, Aditya Birla’s new fund may invest in foreign ETFs, including Amplify Transformational Data Sharing ETF and Siren Nasdaq NexGen Economy ETF.

“SEBI has approved similar concepts in the past and has no policy/track record of disapproving the subject… As Blockchain is a growing concept with real applications in real world businesses, we believe That SEBI will look at it positively. This fund proposes to invest in overseas ETFs investing in these assets,” Abhishek Singhal, Head, Passive & Alternative Strategies, Aditya Birla Sun Life Mutual Fund said in an emailed reply. An email sent to Navi’s spokesperson had not been replied to until press time.

Navi’s Internet of Things ETF Feeder Fund will invest in units of foreign ETFs, providing exposure to companies that benefit from widespread adoption of Internet of Things (IoT) technology. This index will be benchmarked against the Global Internet of Things Thematic Index.

Anu Tiwari, partner at Cyril Amarchand Mangaldas, said, “The Metaverse has the potential to fundamentally re-look at the legal principles surrounding conduct, and the liability challenges with regulating AI (artificial intelligence) again with the Metaverse-run outlet.” will emerge.”

“In a Metaverse fund, the ultimate investment will be in a firm. Any company that has an outlet in the Metaverse is setting up an outlet in its work, which may include selling cars or burgers, games, and importantly, underlying assets.” The company will be there,” Tiwari said. This is the second regulatory hurdle, which includes foreign investment limits. If these funds are viewed as purely foreign funds and not so-called ‘metaverse funds’, they would potentially breach the foreign investment limit of up to $1 billion per mutual fund.