SIF (Specialized Investment Funds): SEBI’s Hybrid Investment Vehicle for HNIs

The Securities and Exchange Board of India (SEBI) has introduced a Specialized Investment Fund (SIF), a new category of investment products effective from April 1, 2025, to bridge the gap between traditional Mutual Funds (MFs) and Portfolio Management Services (PMS). SIFs offer a combination of the structure and regulation of mutual funds with the flexibility and customized strategies of PMS. They can invest in a wide range of assets, including stocks, bonds, real estate, and private equity. These funds are intended for High Net-worth Individuals (HNIs) and sophisticated or accredited investors who understand complex investment strategies and can bear potentially higher risks. They are generally not suitable for retail investors.

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Key Features and Regulations:

1. Minimum Investment:
   1. A minimum investment of Rs 10 lakh per investor is required.
   2. The Rs 10 lakh threshold applies at the PAN level, aggregating all SIF investments within a single AMC—not per scheme.
   3. This minimum threshold must be maintained; if redemptions cause the value to fall below Rs 10 lakh, the investor may need to redeem the entire remaining amount.
   4. Accredited Investors (those meeting specific SEBI criteria for net worth/income) are exempt from this minimum investment requirement.
   5. Systematic Investment Plans (SIPs), SWPs, and STPs are permitted, provided the minimum threshold is maintained.
2. Permitted Investment Strategies: AMCs can currently launch only one strategy per category (Equity, Debt, Hybrid). Permitted types include:
   1. Equity-Oriented:
      1. Equity Long-Short: Min. 80% in equity/related instruments; max 25% unhedged short exposure via derivatives.
      2. Equity Ex-Top 100 Long-Short: Min. 65% in equity outside the top 100 stocks by market cap; max 25% short exposure.
      3. Sector Rotation Long-Short: Min. 80% equity in up to 4 sectors; max 25% short exposure (applied at sector level).
   2. Debt-Oriented:
      1. Debt Long-Short: Invests across various durations.
      2. Sectoral Debt Long-Short: Focuses on 2+ sectors, max 75% exposure per sector.
   3. Hybrid:
      1. Active Asset Allocator Long-Short: Dynamically allocates across equity, debt, REITs/InvITs, commodity derivatives.
      2. Hybrid Long-Short: Min. 25% in equity, min. 25% in debt; max 25% short exposure.
3. Investment Flexibility & Restrictions:
   1. Short Selling: Allowed via derivatives (unhedged) up to 25% of Net Assets, enabling strategies to profit from falling prices.
   2. Concentration: Higher single-stock limits possible compared to MFs (details may vary by strategy). Debt limits exist (e.g., 20% in AAA, 16% in AA per issuer; max 25% per sector).
   3. Derivatives: Can be used for non-hedging purposes up to 25% of net assets. Total gross exposure (cash + derivatives) capped at 100% of net assets. o REITs/InvITs: Higher allocation possible compared to MFs (e.g., up to 20%).
4. Structure and Liquidity:
   1. Can be launched as open-ended, close-ended, or interval funds.
   2. Subscription/redemption frequency depends on the strategy’s nature.
   3. A notice period (up to 15 working days) for redemption might be applicable.
   4. Closed-ended and interval SIFs must be listed on a recognized stock exchange to provide an exit route.
   5. Interval SIFs are exempt from the strict maturity-matching rules that apply to regular MF interval schemes, allowing more flexibility
5. Taxation:
   1. SIFs follow pass-through taxation, which means taxes are levied directly on investors, making them more attractive compared to Category III AIFs, which are taxed at the fund level, which means that earnings within the fund are subject to taxation before they reach investors.
   2. The taxation of SIFs is similar to that of mutual funds.

6. Regulation, Compliance, and Disclosure:
   1. Risk Management: Mandatory 5-level risk banding (Risk Band 1 Low to 5 High), reviewed monthly.
   2. Benchmarking: Must use a single-tier benchmark (e.g., broad market index like Nifty 500 for equity).
   3. Disclosure: Enhanced disclosure requirements including portfolio details, liquidity risk reports, scenario analysis, available on a dedicated website/webpage. Standard risk warnings required in advertisements.
   4. Fees: Expense ratios follow MF regulations.

Which AMCs are Offering SIFs?

The SIF framework is very new (effective April 1, 2025). As of late April 2025:

• Planning/Preparation Stage: Several prominent AMCs have publicly indicated their intention to enter the SIF space and are likely in the process of developing products and seeking approvals. These include:
  • Nippon India Mutual Fund
  • Axis Mutual Fund
  • Mirae Asset Mutual Fund
  • Edelweiss Mutual Fund
  • Union Mutual Fund
  • ICICI Prudential Mutual Fund
  • DSP Mutual Fund
• Some AMCs like Axis and Nippon India have made high-profile hires from the Alternative Investment Fund (AIF) industry to lead their SIF divisions, signalling serious intent.
• Actual Launches: AMCs need to file applications and get SEBI approval for specific strategies. SEBI issued standardized application formats around April 11, 2025, suggesting the application process is underway.

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Recommendation:

While several prominent AMCs (like Nippon India, Axis, Mirae Asset, Edelweiss, Union, ICICI Prudential, DSP) have indicated plans to launch SIFs, actual schemes are likely just beginning to emerge or are still in the approval process.

Given the novelty and nature of these products, extreme caution is advised.

Since these schemes are new, they will have no performance history at launch, making it difficult to assess a fund manager’s effectiveness within the flexible SIF framework initially.

Past performance in traditional mutual funds may not directly translate. SIFs are permitted to use more complex strategies (long-short, derivatives for non-hedging, higher concentration) than typical mutual funds. These strategies carry significant risks, including the potential for substantial losses, even in flat or moderately positive markets, if the strategy execution is flawed.

Structures can be open-ended, interval, or closed-ended (listed), liquidity may not be immediate. Notice periods for redemption (up to 15 working days) can apply, and liquidity for listed closed-ended schemes depends on market buyers and sellers.

These products are strictly intended for sophisticated investors who have a very high-risk appetite and are comfortable with the possibility of significant capital loss and are considering investing only with excess cash – funds they can afford to lose or lock up for potentially extended periods without impacting their core financial goals or needs.

Disclaimer:

This article should not be construed as investment advice, please consult your Investment Adviser before making any sound investment decision.”If you’re someone with significant investment assets looking for unbiased, client-focused financial planning and wealth management, consider engaging a SEBI-registered Investment Adviser — book an exploratory call with an expert today to explore the right strategy for your goals.” Click here to book a free and  non obligatory consultation