What Is a Specialised Investment Fund (SIF)?

On April 1, 2025, SEBI introduced the Specialized Investment Fund (SIF). Positioned between mutual funds and Portfolio Management Services (PMS), SIF offers investors greater flexibility and customised opportunities as compared to mutual funds and a low-cost entry, compared to PMS, which requires a minimum investment of  ₹50 lakh.

The blog provides an overview of SEBI’s Specialized Investment Fund (SIF), as outlined in the SEBI circular.

What is Specialized Investment Fund (SIF)?

SIF is meant for investors comfortable with markets and ready to take on higher risk for better returns. SEBI introduced it to fill the gap between mutual funds, which follow fixed strategies, and PMS, which requires at least ₹50 lakh and serves mainly wealthy investors. With a ₹10 lakh minimum investment, SIF makes investing more accessible.

How SIF is Different from Mutual Funds and PMS

Specialized Investment Fund (SIF): 

1. Requires a ₹10 lakh minimum investment, more than mutual funds but less than the ₹50 lakh needed for PMS.
2. Offers flexible, customised strategies across equity, debt, REITs, and derivatives, managed by experienced professionals.
3. Allows SIPs, SWPs, and STPs, with risk controls like sector and debt exposure caps (extendable by 5% with approvals)

Mutual Funds (MFs):

1. Known for their accessibility, with low entry points ideal for retail investors and those with less market experience.
2. Typically follow set investment strategies, giving fund managers and investors limited flexibility.
3. Generally viewed as a safer, more conservative investment option.

Portfolio Management Services (PMS):

1. Offer personalised investment plans tailored to each individual’s financial goals.
2. Come with a high entry barrier, requiring a minimum investment of ₹50 lakh.
3. Mainly accessible to high‑net‑worth individuals (HNIs) and experienced investors comfortable with higher risk.

Eligibility Criteria for Mutual Funds to Launch SIF under SEBI Rules

SEBI has laid down some strict eligibility criteria for Asset Management Companies (AMCs) to establish and manage SIFs, ensuring that these funds are handled by experienced professionals. AMCs can qualify through one of two routes:

• Route 1: Sound Track Record: This route is for established players. The mutual fund must have been in operation for at least three years and have an average Asset Under Management (AUM) of not less than ₹10,000 crore in the preceding three years.
• Route 2: Alternate Route: This option is available for newer or other AMCs. They must appoint a Chief Investment Officer (CIO) for the SIF with at least 10 years of fund management experience and a track record of managing an average AUM of at least ₹5,000 crore. Additionally, an additional Fund Manager with at least three years of experience and having managed an average AUM of ₹500 crore is required.

SIF Investments and Portfolio Structure

• Diverse Investment Scope: Depending on the strategy chosen by the AMC, SIFs can invest in equity, debt, real estate investment trusts (REITs), derivatives like futures and options (F&O). Based on the selected strategy, SIFs may carry higher risk and offer higher returns compared to standard equity funds.
• NAV Restrictions for Debt Securities: A strategy under SIF cannot invest more than:
  
  
  • 20% of its Net Asset Value (NAV) is in debt and money market instruments from a single AAA-rated issuer.
  • 16% of NAV in securities are rated AA.
  • 12% of NAV in securities rated A or lower.

These limits can be raised by 5% if approved by the mutual fund trustees and the AMC’s board. No more than 25% of NAV can be invested in debt and money market securities of one sector.

• Sectoral Allocation Cap: No more than 25% of NAV can be allocated to securities of a particular sector.
• Systematic Investment Options: AMCs can offer systematic investment options like Systematic Investment Plan (SIP), Systematic Withdrawal Plan (SWP), and Systematic Transfer Plan (STP), ensuring compliance with the minimum investment threshold of INR 10 lakh per investor at the Permanent Account Number (PAN) level.

Advantages of SIF

• Advanced Investment Strategies: SIFs allow AMCs to launch funds with advanced, strategy-driven mandates (e.g. long-short, credit-oriented), offering more sophisticated exposure than traditional mutual funds.
• Lower Entry Barrier than PMS: With a minimum investment of ₹10 lakh, SIF is accessible to a broader range of investors compared to the ₹50 lakh required for PMS.
• Potential for Higher Returns: The flexibility to invest in diverse assets like equity, debt, REITs, and derivatives can lead to enhanced returns.
• Systematic Investment Options: Availability of SIP, SWP, and STP provides investors with structured and flexible investment plans.
• Professional Management: Backed by experienced CIOs and fund managers, SIF benefits from expert oversight.

Disadvantages of SIF

• Higher Risk Exposure: The use of derivatives and flexible strategies increases the risk profile, making it unsuitable for conservative investors.
• Significant Minimum Investment: The ₹10 lakh threshold may still be a barrier for small retail investors accustomed to mutual funds.
• Complexity: The diverse investment options and risk management requirements may be challenging for investors without market knowledge.
• Regulatory Dependence: Compliance with SEBI guidelines and approval processes could limit the speed of strategy implementation.
• Potential for Volatility: The higher return potential comes with increased market volatility, which may affect portfolio stability.

Conclusion

Investor needs in India have evolved, with mutual funds becoming too rigid and PMS remaining exclusive. SEBI addressed this by amending the SEBI (Mutual Funds) Regulations, 1996, introducing the Specialised Investment Fund (SIF) on April 1, 2025. SIF bridges the gap, offering a practical and accessible investment option that balances risk and reward, setting the stage for a stronger future in India’s financial landscape.

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