We all have heard about mutual funds and portfolio management services. But SEBI’s new SIF fund aims to fill the gap between these two. It offers more flexibility than mutual funds. SIF full form is Specialized Investment Fund. It lets you explore different investment strategies.
If you’re tired of the same old investment choices, Specialized Investment Funds (SIF) could offer you something new.
Let us look at the features of the SIF fund and see how to invest in specialised investment fund.
Specialised Investment Fund
This new asset class, introduced by SEBI, is designed to serve the investors who are seeking more sophisticated investment strategies.
A Specialized Investment Fund is a category of funds that offers investors more flexibility in terms of investment strategies compared to mutual funds. While it retains regulatory oversight to protect investors, it allows for a wider range of investment options. You could explore equity, debt, and hybrid strategies, offering more opportunities to diversify portfolios.
When will the new framework come into effect?
The Securities and Exchange Board of India (SEBI) has amended the SEBI (Mutual Funds) Regulations, 1996, to introduce the Specialized Investment Fund (SIF) framework. These changes will take effect from April 1. Additional implementation guidelines are expected from the Association of Mutual Funds in India (AMFI) by March 31.
SIF vs Mutual Funds vs PMS?
What makes Specialized Investment Funds different from Mutual Funds and PMS?
SIFs are distinct in terms of regulatory structure, investment flexibility, and investor eligibility. SEBI has designed them to strike a balance between greater operational flexibility for fund managers and stronger safeguards for investors.
| Feature | Mutual Funds (MFs) | Portfolio Management Services (PMS) | Specialized Investment Funds (SIFs) |
| Investment Amount | Starts from ₹500 or ₹1,000 for SIP | Requires ₹25 Lakhs or more | Minimum ₹10 Lakh |
| Investor Type | Suitable for all types of investors, including retail | Targeted towards high-net-worth individuals (HNIs) | Suitable for both individual and institutional investors |
| Regulation | Regulated by SEBI under mutual fund regulations | Regulated by SEBI but with more flexibility | New category introduced by SEBI, combining flexibility of PMS & regulation of MF |
| Investment Flexibility | Fixed investment style, follows a fund manager’s strategy | Highly customizable portfolio based on client’s needs | More flexible than mutual funds but with some restrictions on asset classes |
| Risk Level | Generally lower, diversified portfolio | Risk depends on the portfolio chosen by the investor | Higher risk due to specialized strategies like equity long-short and sector-specific funds |
| Management Style | Passive or actively managed, depending on the fund | Actively managed, with a focus on individual portfolios | Actively managed, offers multiple strategies (Equity, Debt, Hybrid) |
| Liquidity | High liquidity, daily NAV updates, redeem anytime | Less liquid, redemption typically takes time | Flexible redemption but with a notice period (up to 15 days) |
| Investment Strategy | Broad market exposure (Equity, Debt, etc.) | Custom-built portfolio as per investor’s goals | Focus on specialized strategies, including equity long-short, debt long-short, and hybrids |
| Diversification | High, through pooled investments | Limited to a select few assets based on the portfolio | Moderate to high, but focuses on specific sectors/assets |
What are the Advantages of SIF?
From real estate to private equity, SIFs let you diversify your portfolio without the typical limits of traditional funds.
- Flexible Investment Strategies: SIFs allow a mix of equity, debt, and hybrid investment strategies, giving investors more control and flexibility over their portfolio.
- Regulatory Compliance: Despite offering more flexibility, SIFs are designed to comply with SEBI’s regulations. This ensures investor protection.
- Increased Portfolio Diversification: With the ability to invest in a variety of asset classes, SIFs help in better portfolio diversification.
- Access to Complex Strategies: Investors can access complex investment strategies like Equity Long-Short Funds and Sectoral Debt Funds. These are not usually available in traditional mutual funds.
- Higher Risk-Return Potential: Given their flexible strategies, SIFs are suited for those looking for higher returns, with an acceptable level of risk.
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How to Invest in Specialized Investment Fund?
To invest in a Specialized Investment Fund (SIF), an investor needs to meet the minimum investment requirement of Rs 10 lakh per investor across all strategies. SIFs are available through Asset Management Companies (AMCs) that offer these funds under SEBI’s framework.
If an investor’s total investment falls below Rs 10 lakh due to redemptions, they must redeem the entire remaining investment.
It’s essential to note that Systematic Investment Plans (SIP), Systematic Withdrawal Plans (SWP), and Systematic Transfer Plans (STP) are allowed but must comply with the minimum threshold.
Specialized Investment Fund India – SEBI’s Framework for SIF
SEBI has introduced the final framework for SIFs, which includes detailed guidelines on who can establish and manage these funds.
To set up an SIF, an AMC must meet specific criteria, such as having at least three years of operational history and an average Assets Under Management (AUM) of Rs 10,000 crore or more. Alternatively, an AMC must have a Chief Investment Officer (CIO) with 10 years of experience managing AUMs of Rs 5,000 crore or more.
The introduction of SIF in India represents an innovative approach to expanding the range of investment products available in the Indian financial market. With growing demand for more diverse and flexible investment options, SIFs cater to high-net-worth individuals (HNWIs) and accredited investors looking for greater portfolio customisation.
What Investment Strategies Can SIFs Offer?
SEBI permits SIFs to offer three primary categories of investment strategies:
- Equity-Oriented Strategies: These include Equity Long-Short Funds, which invest predominantly in equities, and Sector Rotation Funds, which focus on specific sectors.
Equity Long-Short Fund: Minimum 80% equity with a 25% short position cap.
Equity Ex-Top 100 Long-Short: Excludes top 100 large-cap stocks, requires 65% equity investment.
Sector Rotation Long-Short: Focuses on up to 4 specific sectors.
- Debt-Oriented Strategies: These funds primarily invest in fixed-income securities, such as Debt Long-Short Funds and Sectoral Debt Funds.
Debt Long-Short: Thse allow varying maturities.
Sectoral Debt Long-Short: It concentrates on at least two sectors, with a cap of 75% per sector
- Hybrid Strategies: These funds combine both equity and debt investments, such as Active Asset Allocator Funds and Hybrid Long-Short Funds, offering a balanced approach.
Active Asset Allocator: This SIF dynamically shifts across equity, debt, REITs, and commodities.
Hybrid Long-Short: It requires at least 25% allocation each to equity and debt.
Each SIF can offer only one strategy per category under the current structure.
Specialized Investment Fund (SIF) Eligibility
SIFs are intended for sophisticated investors, and the minimum investment requirement is set at Rs 10 lakh. This ensures that only investors who meet specific criteria and can bear higher risks are involved. Accredited investors are allowed to invest with different eligibility rules, offering them more flexibility.
- Exposure Limits: There are restrictions on the amount SIFs can invest in a single issuer.
For example, the cap is 20% for AAA-rated debt, 16% for AA-rated debt, and 12% for A-rated or below.
- Sectoral Exposure: There is also a cap on sectoral exposure in debt investments, which cannot exceed 25% of the Net Asset Value (NAV).
- Derivatives Exposure: SIFs can take unhedged short positions in derivatives, but this exposure is limited to 25% of their net assets.
How Can Investors Subscribe and Redeem SIF Investments?
SIFs offer flexible subscription and redemption options, such as daily, weekly, or monthly redemptions. The redemption process can include a notice period of up to 15 working days, allowing the fund managers to manage liquidity effectively. For closed-ended strategies, SIFs must be listed on a recognised stock exchange, providing an additional liquidity option.
SIF Benchmarking and Disclosures
SIFs are required to follow a single-tier benchmark system, using widely recognised market indices like the Nifty 500 or BSE Sensex for equity strategies. Debt strategies must use appropriate bond indices. Additionally, SIFs must disclose their portfolio details every two months, along with other essential information like potential risks and scenario analysis.
SEBI Regulations on SIFs
SEBI’s framework for Specialized Investment Funds includes strict rules to ensure transparency, investor protection, and market integrity.
This includes mandatory disclosures, a risk band system, and an emphasis on comprehensive risk management practices.
Who Can Distribute Specialized Investment Fund
Distributors authorised by SEBI to offer mutual funds are also allowed to distribute SIFs. These distributors must have passed the National Institute of Securities Markets (NISM) Series-XIII certification examination to ensure they are equipped with the knowledge to handle these complex investment products.
Conclusion
The introduction of the Specialized Investment Fund (SIF) by SEBI marks a significant step forward in providing more customised investment options in India. SIFs offer an attractive middle ground between traditional mutual funds and portfolio management services.
However, it’s important for investors to understand the associated risks and eligibility requirements before investing in these funds.
SIF Fund: FAQs
A Specialized Investment Fund (SIF) is a new investment category introduced by SEBI to offer a balance between mutual funds and portfolio management services. It provides greater portfolio flexibility than mutual funds while maintaining stronger investor protections than PMS.
While mutual funds have strict diversification norms and serve retail investors, SIFs offer more flexibility in portfolio construction. They allow complex strategies like long-short, and are targeted at more sophisticated investors.
Any investor can invest in SIFs as long as they meet the minimum investment requirement of ₹10 lakh across all strategies, unless they are accredited investors who may have different thresholds.
The minimum investment threshold for SIF is ₹10 lakh per investor. It is applicable across all strategies, and if the investment falls below this amount, the investor must exit completely. SIPs, SWPs, and STPs are permitted as long as they comply with this ₹10 lakh limit.
SIFs are regulated under SEBI’s mutual fund framework. They aim to offer a bridge between mutual funds and PMS, with stricter disclosures and flexible redemptions. AIFs, on the other hand, are pooled investment vehicles regulated under a separate SEBI framework. They offer a fewer liquidity options.
The framework for the Specialized Investment Fund (SIF) will be effective from April 1, 2025.
The minimum investment requirement for SIF is Rs 10 lakh per investor across all investment strategies, except for accredited investors.
Source: MoneyControl
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Disclaimer: Investments in the securities market are subject to market risks; read all the related documents carefully before investing.