The Securities and Exchange Board of India (SEBI) has introduced a new category of investment products known as Specialized Investment Funds (SIFs). They aim to bridge the gap between Portfolio Management Services (PMS) and Mutual Funds (MFs) by providing investors with enhanced freedom in their investments while maintaining regulatory norms. Effective from April 1, 2025, the new framework has been designed to provide investors with a broader list of options of varying risk-return profiles.
Highlights of the Regulatory Framework
1. Eligibility Criteria for SIFs
For Mutual Funds intending to create an SIF, they should satisfy one of the following:
Route 1 - Established Track Record:
- They should have been in business for a minimum of three years with an average Assets Under Management (AUM) of ₹10,000 crores.
- There should be no regulatory proceedings against the sponsor or Asset Management Company (AMC) for the past three years.
Route 2 - Alternative Route:
- They should have a Chief Investment Officer (CIO) with a minimum of 10 years' experience of managing funds and an AUM of ₹5,000 crores
- Also, they need to have another fund manager in place with at least three years of experience of managing an AUM of ₹500 crores.
- Once more, there are no regulatory proceedings in the last three years.
AMCs can share operational infrastructure between MFs and SIFs.
2. Branding and Advertisement Guidelines
- SIFs need to have a distinctive brand name and logo that differs from the MF brand.
- During the initial five years, they can use the sponsor's brand name with tags such as "brought to you by" or "offered by."
- But the SIF's brand name should be more visible than the sponsor's in all promotional materials.
- A different website or exclusive webpage for SIFs should also be provided.
3. Investment Strategies
- SEBI has provided clearance for certain investment strategies that come under three broad categories:
- Equity-Oriented Strategies (like Equity Long-Short Fund, Sector Rotation Long-Short Fund).
- Debt-Oriented Strategies (such as Debt Long-Short Fund, Sectoral Debt Long-Short Fund).
- Hybrid Strategies (including Active Asset Allocator Long-Short Fund, Hybrid Long-Short Fund).
- Each AMC is allowed to launch only one strategy within each category.
4. Minimum Investment Threshold
- Minimum investment per investor across all SIF strategies is ₹10 lakh.
- Accredited investors are exempt from this requirement.
- Systematic investment options such as SIP, SWP, and STP are permitted while preserving the minimum level.
5. Investment Restrictions
- Up to 20% of NAV in AAA-rated debt securities of a single issuer.
- Up to 25% exposure to a single sector.
- Up to 25% of net assets can be held in derivatives for purposes other than hedging.
6. Subscription and Redemption Policies
- SIFs can provide different subscription and redemption frequencies (daily, weekly, monthly, etc.).
- Notice periods for redemptions can be a maximum of 15 working days.
- Close-ended and interval investment strategies have to be listed on approved stock exchanges.
7. Benchmarking of Investment Strategies
- A single-tier benchmark structure is required.
- Equity strategies need to be benchmarked against broad market indices such as NSE Nifty.
- Debt strategies need to use a suitable debt market index.
8. Distribution of SIFs
- Mutual Fund distributors are required to clear the NISM Series-XIII: Common Derivatives Certification Examination to distribute SIFs.
9. Disclosure Requirements
- Portfolio disclosure every second month on AMC and AMFI websites.
- Scenario analysis for derivatives in offer documents.
- Advertisements should carry a standard disclaimer on risks.
10. Risk-Band Classification
- Like mutual fund schemes, a five-level risk band (Lowest to Highest Risk) will be adopted.
- Risk bands will be reviewed monthly and made public.