What is SIF (Specialised Investment Fund)?

What are SIFs going to offer investors?

SIFs bring a wide range of offerings for investors:

• Minimum Investment: SEBI has clarified that the ₹10 lakh minimum investment threshold is applicable at the PAN level, covering all SIF strategies offered by a particular Asset Management Company (AMC), rather than being required separately for each individual scheme.
• Short-Selling Permitted: Fund managers have the flexibility to short-sell up to 25% of the portfolio’s net value through derivatives. This approach supports investment strategies that can generate returns not only from appreciating stocks but also from declining ones.
• Equity Investment Mandate: A minimum of 80% of the assets in equity-focused Strategic Investment Funds (SIFs) must be allocated to equities and related instruments.
• Designed for Seasoned Investors: This offering is intended for individuals who are familiar with moderately complex financial products and can meet higher investment thresholds.
• Diverse Strategy Options: The Securities and Exchange Board of India (SEBI) has authorized SIFs to operate under three main investment approaches: Equity-Oriented, Debt-Oriented, and Hybrid Strategies.
• Flexibility in Interval strategy: SEBI has provided an exemption for interval strategies within SIFs from the stringent maturity-matching regulations that typically govern standard interval schemes.

What are the features of SIF?

The Specialised Investment Fund is characterized by distinct features like:

• Higher Allocation Limits: Up to 15% allocation in a single security, compared to the 10% cap in mutual funds. Fixed-income strategies can invest up to 20% of their assets in a single issuer, with the option of increasing to 25% with board approval.
• Expanded REIT and INVIT Investments: Limits for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (INVITs) are doubled to 20%.
• Transparency: SEBI mandates clear differences from mutual funds, including distinct branding and strong risk controls.
• Innovation Potential: AMCs can design specialized products tailored to unique investor goals and risk tolerance.

What is the risk mitigation of SIF?

SEBI has incorporated rigorous risk mitigation strategies into the SIF framework:

• Exposure Limits: To reduce concentration risks, SIFs cap allocations to individual issuers, companies, and sectors. The 15% allocation limit in equity and 20%-25% in fixed income ensure portfolio diversification.
• Regulatory Oversight: SEBI enforces transparency through detailed disclosures, ensuring investors are well-informed about the risks.
• Accredited Investors: Exemptions for accredited investors come with a higher level of due diligence and risk acknowledgment.
• Flexible Structures: Open-ended and closed-ended options allow fund managers to align investment horizons with risk levels, balancing potential returns and associated risks.

These measures collectively safeguard investor interests while allowing for innovative and higher-risk investment strategies. 
 

Difference between SIF and Mutual Funds

While mutual funds and PMS cater to different investor segments, SIFs bridge the gap by offering a middle ground.

Here are the key differences:

• Investment Threshold: SIFs require a minimum of ₹10 lakh, compared to PMS that need ₹50 lakhs. Mutual funds on the other hand come with much lower entry points. 
• Allocation Limits: SIFs allow up to 15% allocation to a single security, higher than mutual funds’ 10% cap. Fixed-income strategies in SIFs offer even greater flexibility.
• Cost Structure: The expense ratio of SIFs aligns with mutual funds, with tiered charges based on fund size.
• REIT and INVIT Investments: SIFs permit 20% investment in these instruments which is double the limit allowed in mutual funds.

Who is SIF for?

The Specialised Investment Fund is designed for:

• High-Net-Worth Individuals (HNIs): Tailored for experienced investors with significant capital and a higher risk appetite.
• Advanced Investors: Those seeking sophisticated strategies and broader exposure limits.
• Portfolio Managers: SIFs enable managers to create customized products that traditional mutual funds cannot accommodate.

By empowering portfolio managers, SIFs align with investors’ unique financial goals and risk profiles, making them ideal for those seeking diversification and innovation.
 

Benefits of Specialised Investment Fund by SEBI

Here are the advantages of SIFs:

• Broader Diversification: Strategic Investment Funds (SIFs) allow exposure to a wider array of asset classes and investment tactics, promoting greater portfolio diversification.
• Sophisticated Investment Options: Investors gain access to advanced strategies—like long-short approaches—that are generally not offered by conventional mutual funds.
• Governed by Regulations: SIFs function within the regulatory guidelines set by SEBI, ensuring a transparent and well-structured investment framework.
• Flexible Interval Strategy: SIFs offer greater flexibility to allocate funds to longer-duration or less liquid assets, which can potentially boost returns for investors committed to staying invested over extended periods.

These benefits make SIFs an attractive choice for investors seeking advanced options and higher returns.
 

Eligibility Criteria for AMCs to Launch SIFs

SEBI outlines two pathways for Asset Management Companies (AMCs) to qualify for launching Strategic Investment Funds (SIFs):

Track Record-Based Eligibility:

• The AMC should have a minimum operational history of three years.
• It must have maintained an average Assets Under Management (AUM) of ₹10,000 crore or more during the past three years.
• Appointment of a Chief Investment Officer (CIO) with a minimum of 10 years of fund management experience and an average AUM of ₹5,000 crore, along with an additional fund manager with at least three years of experience and an average AUM of ₹500 crore.
   

Conclusion

The introduction of SIFs by SEBI marks a significant evolution in India’s investment landscape. By bridging the gap between mutual funds and portfolio management services, SIFs offer advanced strategies, flexibility, and professional management. While higher risks are inherent, stringent regulatory measures ensure a balanced approach. SIFs stand out as a promising opportunity for HNIs and seasoned investors seeking diversification and innovation in their portfolios.