Specialized Investment Fund: The Securities and Exchange Board of India (SEBI) is set to launch a new asset class for investors on April 1, 2025. The introduction of the Specialized Investment Fund (SIF) by SEBI aims to cater to the increasing demand from investors who feel constrained by the conventional options of mutual funds and Portfolio Management Services (PMS).
While mutual funds offer diversification and professional management, they may not always provide the level of customisation desired by some investors. On the other hand, PMS requires a significant capital commitment, which acts as a deterrent for many retail investors. Additionally, PMSs are subject to less stringent regulation by SEBI compared to mutual funds.
SIFs will merge the diversified approach of mutual funds with the active management strategies of PMS, providing investors with a well-rounded solution that enhances both risk management and returns. In addition, unlike PMS, which normally necessitates a minimum investment of Rs 50 lakh, this new asset class will feature a reduced entry threshold, enabling a wider range of investors to participate.
Zerodha Varsity explained the Specialized Investment Funds in a few highlights:
1. SEBI introduced Specialized Investment Funds (SIFs), positioned b/w MFs & Portfolio Management Services. They are more flexible than MFs and are more transparent & tax-efficient than PMSes. But, they carry higher risks than MFs.
2. SIFs can take derivative exposure.
3. How is SIF different from MFs?
> More flexibility in portfolio construction by allowing F&O > Allows exposure through derivatives beyond hedging > Interval-based redemptions allowed instead of daily liquidity > Higher minimum investment threshold
4. Categories of investment strategies 1.Equity > Equity Long-Short: Like a Flexi Cap Fund with derivatives > Equity Ex-Top 100 Long-Short: Like a Mid Cap Fund with derivatives > Sector Rotation Long-Short: Like a Sectoral Fund (max 4 sectors) with derivatives 2. Debt 3. Hybrid
5. SIP in SIFs
> SIFs may allow SIP, SWP, and STP, but you must always maintain a Rs 10 lakh investment.
> Value falling due to market conditions won’t count as a violation.
6. Notice Period in SIFs
SIFs may have a notice period for redemptions, meaning your withdrawal is processed at NAV at the end of the waiting period. The max wait time is 15 working days.
In contrast, MFs allow redemption requests on any day, with settlements in 2-3 working days.
7. Scenario Analysis
SIFs will include a scenario analysis in offer documents, showing potential losses to investors in different market conditions.
Similarly, MFs conduct stress testing, which helps identify how a fund might react during a market fall or low liquidity periods.
8. These SIF rules take effect from April 1, 2025.
Only registered mutual funds would launch SIFs, but they will have separate branding for MFs and SIFs, including different websites.
As with any new financial product, investors should approach it gradually and carefully.