SEBI Launches Specialized Investment Funds (SIFs) to Bridge Gap Between Mutual Funds and PMS

SEBI Launches Specialized Investment Funds (SIFs) to Bridge Gap Between Mutual Funds and PMS

SEBI Introduces Specialized Investment Funds: A New Avenue for Investors

The Securities and Exchange Board of India (SEBI) is set to introduce a new category of investment vehicles called Specialized Investment Funds (SIFs) from April 1, 2025. This new framework aims to bridge the gap between Mutual Funds (MFs) and Portfolio Management Services (PMS) by offering enhanced flexibility while maintaining regulatory oversight.

Understanding the Difference: SIFs vs. Mutual Funds vs. PMS

Investment options in India vary in terms of regulatory supervision, investment flexibility, and investor eligibility. SEBI recognizes a clear gap between traditional Mutual Funds and PMS, leading to the development of SIFs, which combine flexibility with regulatory protection.

Key Features of Specialized Investment Funds

SEBI’s framework for SIFs introduces several structural and operational changes compared to Mutual Funds:

• Put Options & Short Positions: Unlike traditional Mutual Funds, SIFs are allowed to buy put options and take short positions up to 25% of their total Assets Under Management (AUM). The calculation of options exposure in SIFs considers only premium exposure, whereas in Mutual Funds, it is based on total intrinsic value.
• Minimum Investment Requirement: Investors must maintain a minimum investment of ₹10 lakh across all SIF schemes. However, accredited investors are exempt from this requirement.
• Branding & Identity: Any Asset Management Company (AMC) managing a SIF must ensure that its SIF has a distinct brand name and logo separate from its mutual fund offerings.
• Investment Strategies: SIFs will operate under seven different investment strategies across equity, debt, and hybrid categories.

Investment Strategies Approved Under SIF Framework

Equity-Based Strategies

1. Equity Long-Short Fund

   • Requires at least 80% equity exposure.
   • Allows for a maximum short exposure of 25% through unhedged derivative positions.

2. Equity Ex-Top 100 Long-Short Fund

   • Maintains a minimum of 65% equity exposure, excluding the top 100 companies by market capitalization.
   • Allows a maximum 25% short exposure, focusing on mid and small-cap stocks.

3. Sector Rotation Long-Short Fund

   • Requires 80% minimum investment in equities, spread across a maximum of four sectors.

Debt-Based Strategies

4. Debt Long-Short Fund

   • Offers strategies similar to dynamic bond funds but with added derivative exposure for risk management.

5. Sector Debt Long-Short Fund

   • Focuses on fixed-income instruments across specific sectors, providing a unique approach to debt investment.

Hybrid Strategies

6. Actively Managed Asset Allocation Long-Short Fund

   • Adjusts between equity and debt allocations dynamically, optimizing returns based on market conditions.

7. Hybrid Long-Short Fund

   • Incorporates both equity and debt investments, similar to Balanced Advantage Funds (BAFs) but with greater flexibility in shorting.

Investor Eligibility & Minimum Investment Criteria

• Minimum Investment: Investors must commit at least ₹10 lakh across all SIF schemes. If investments fall below this due to market fluctuations, investors can redeem the entire amount.
• Systematic Investment Plans (SIP), Systematic Withdrawal Plans (SWP), and Systematic Transfer Plans (STP): The total investments in SIFs through these methods should not drop below ₹10 lakh.

Subscription & Redemption Structure

SIFs will be available in open-ended, close-ended, and interval-based structures, with flexible subscription and redemption windows depending on the nature of the strategy.

Who Can Set Up SIFs?

To establish a SIF, an AMC must apply for SEBI approval. Two eligibility routes have been outlined:

1. Track Record Route

   • The mutual fund must have a minimum operational history of three years.
   • It must have maintained an average AUM of ₹10,000 crore over the last three years.

2. Alternate Route

   • The Chief Investment Officer (CIO) for the SIF must have at least 10 years of fund management experience.
   • The CIO should have managed an AUM of at least ₹5,000 crore on average.
   • An additional fund manager with three years of experience managing an average AUM of ₹500 crore is also required.

How Will SIFs Impact the Market?

Experts believe SIFs will introduce hedge fund-like strategies within SEBI’s regulated framework. Long-short strategies, sector rotation, and structured investments will offer institutional investors greater flexibility, while retail investors must assess the risk-reward dynamics before investing.

SEBI’s move to introduce SIFs is expected to reshape India’s investment landscape, offering new opportunities for both retail and institutional investors while maintaining regulatory oversight.