What Are Specialized Investment Funds? SEBI's New Investment Category Explained
20 May, 2025
Synopsis
SEBI's introduction of Specialized Investment Funds (SIFs) creates a new investment category with distinctive features.
SIFs bridge the gap between traditional Mutual Funds and Portfolio Management Services, launching on April 1, 2025, with more investment flexibility under regulatory oversight.
Eligibility to launch SIFs requires either established mutual funds (3+ years operation, ₹10,000 crore average AUM) or newer AMCs with specialized talent (CIO with 10+ years managing ₹5,000+ crore).
Investment strategies include long-short equity funds, focused sector rotation, debt long-short funds, and dynamic asset allocation with up to 25% short exposure capability.
SIFs have a higher entry barrier with a minimum investment of ₹10 lakhs, varied redemption frequencies (daily to monthly), and risk ratings from 1-5 with detailed scenario analyses.
Have you ever felt that mutual funds are too restrictive, but PMS (Portfolio Management Services) seems like a big leap? Well, the Securities and Exchange Board of India (SEBI) just filled that gap with something exciting!
SEBI on February 27, 2025, has introduced a new investment category called Specialized Investment Funds (SIF) to bridge the gap between traditional Mutual Funds (MFs) and Portfolio Management Services (PMS). This new framework, effective from April 1, 2025, offers investors more flexibility in their investment strategies while maintaining regulatory oversight. Let's explore this new investment vehicle in detail.
What is a Specialized Investment Fund?
A Specialized Investment Fund is a new investment product regulated under the SEBI (Mutual Funds) Regulations, 1996. SIFs will offer greater portfolio flexibility than regular mutual funds while maintaining regulatory oversight. The framework will come into effect from April 1, 2025.
Who Can Launch SIFs?
Not every fund house can offer SIFs. SEBI has created two pathways for eligibility:
For established players: Mutual funds with 3+ years of operation and at least ₹10,000 crore average AUM in the last three years can launch SIFs, provided they have a clean regulatory record.
For newer entrants: Asset Management Companies (AMCs) can qualify by appointing specialized talent - including a Chief Investment Officer (CIO) with 10+ years of experience managing ₹5,000+ crore, and a Fund Manager with 3+ years of experience managing ₹500+ crore.
Branding and Advertisement Requirements
To maintain clear differentiation between SIFs and regular mutual funds, SEBI has given instructions to follow:
SIFs must have distinct brand names and logos separate from regular mutual funds.
For initial recognition, AMCs may use the sponsor's/mutual fund's brand name for up to 5 years using phrases like "brought to you by" or "offered by".
The font size of the sponsor's/mutual fund's brand name must be equal to or smaller than the SIF's brand name.
AMCs must maintain separate websites or dedicated webpages for SIFs.
Investment Strategies: More Flexibility Than Traditional Funds
The following investment strategies will be allowed under SIF:
A) Equity Oriented Investment Strategies
1. Equity Long-Short Fund: Minimum 80% in equity with maximum 25% short exposure through unhedged derivative positions in equity and equity-related instruments
2. Equity Ex-Top 100 Long-Short Fund: Minimum 65% investment in stocks outside the top 100 by market cap with maximum 25% short exposure through unhedged derivative positions in equity and equity-related instruments.
3. Sector Rotation Long-Short Fund: Minimum 80% investment in maximum 4 sectors with maximum 25% short exposure at the sector level through unhedged derivative positions in equity and equity-related instruments.
B) Debt Oriented Investment Strategies
Debt Long-Short Fund: Investment across debt instruments with short exposure through exchange-traded debt derivatives.
Sectoral Debt Long-Short Fund: Investment in debt instruments of at least two sectors with maximum 75% in a single sector. Maximum short exposure through unhedged derivative positions in debt instruments is 25%.
C) Hybrid Investment Strategies
Active Asset Allocator Long-Short Fund: Dynamic investment across equity, debt, derivatives, REITs/InvITs, and commodity derivatives.
Hybrid Long-Short Fund: Minimum 25% in equity and 25% in debt with maximum 25% short exposure.
Only one investment strategy is permitted under each category to avoid proliferation.
What is the Minimum Investment Threshold?
The minimum investment threshold is ₹10 lakh per investor (at PAN level) across all SIF investment strategies.
This does not include investments in regular mutual fund schemes of the same AMC.
Systematic investment options (SIP, SWP, STP) are allowed while maintaining the minimum threshold.
AMCs must monitor compliance daily.
Passive breaches (due to NAV decline) are not considered violations, but investors are required to redeem their entire remaining investment if it falls below the threshold.
Important Points from Investment/Portfolio Perspective
Portfolio Investment Restrictions
Maximum 20% of NAV in AAA-rated debt securities from a single issuer (16% for AA-rated, 12% for A-rated and below).
Maximum 25% of NAV in debt securities of a particular sector.
SIFs may take up to 25% unhedged short exposure through derivative instruments.
Subscription and Redemption
Frequency can be daily, weekly, fortnightly, monthly, quarterly, annually, or fixed maturity.
Subscription and redemption frequencies may differ.
Notice periods for redemption can be implemented up to 15 working days.
Listing of Units
Units of all closed-ended and interval investment strategies must be listed on recognised stock exchanges.
Investment strategies with non-daily subscription/redemption are classified as "Interval investment strategies".
Risk Communication
A five-level "Risk-band" system will depict potential risks (from lowest to highest).
SIFs must include scenario analysis showing expected losses due to market movements.
All promotional materials must carry a standard disclaimer about higher risks involved.
Disclosure Requirements
Portfolio disclosure must be made every alternate month.
All offer documents must be publicly available.
Standard disclaimer required on all advertisements.
Distribution
Entities distributing mutual funds can distribute SIFs if they have passed the NISM Series-XIII: Common Derivatives Certification Examination.
Is a SIF Right for You?
SIFs are designed for investors who:
Have at least ₹10 lakhs to invest.
Want more sophisticated investment strategies.
Understand and are comfortable with derivatives and short positions.
Don't need immediate liquidity for their investments
If you're considering SIFs, make sure your investment distributor has passed the NISM Series-XIII: Common Derivatives Certification Examination, as this is required for anyone selling these products.
Specialized Investment Funds represent SEBI's effort to create a regulated middle ground between traditional mutual funds and more complex investment vehicles. With their April 2025 launch approaching, these products will offer a new option for sophisticated investors looking for additional portfolio strategies.
Ready to take control of your investment journey? Download the HDFC Bank SmartWealth App today and experience a comprehensive platform that offers investment options as per your risk appetite and financial objectives. With just a few taps, you can start building a diversified portfolio tailored to your investment objectives.
Disclaimer: This communication has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. HDFC Bank Limited ("HDFC Bank") does not warrant its completeness and accuracy. This information is not intended as an offer or solicitation for the purchase or sale of any financial instrument / units of Mutual Fund. Recipients of this information should rely on their own investigations and take their own professional advice. Neither HDFC Bank nor any of its employees shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way from the information contained in this material. HDFC Bank and its affiliates, officers, directors, key managerial persons and employees, including persons involved in the preparation or issuance of this material may, from time to time, have investments / positions in Mutual Funds / schemes referred in the document. HDFC Bank may at any time solicit or provide commercial banking, credit or other services to the Mutual Funds / AMCs referred to herein.
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