Specialised Investment Funds

What are Specialised Investment Funds?

The Specialised Investment fund is controlled under SEBI (Securities and Exchange Board of India) regulations. These funds represent a new mutual-fund product framework that provides improved portfolio flexibility than traditional mutual funds. It is designed for investors who cannot meet the ₹50 lakh minimum required to join a Portfolio Management Service (PMS), but still need access to expert-level investment strategies.

Minimum Investment Threshold for Specialised Investment Funds

SIF funds are managed by Asset Management Companies (AMCs) that meet strict eligibility criteria set by SEBI. Each investor must maintain a minimum investment of ₹10 lakh, calculated at the PAN level across all SIF strategies offered by the same AMC. This threshold applies only to SIF investments and does not include holdings in the AMC’s regular mutual fund schemes. Accredited investors are exempt from this requirement.

AMCs may also offer systematic options under SIFs, such as Systematic Investment Plan (SIP), Systematic Withdrawal Plan (SWP), and Systematic Transfer Plan (STP). The investor’s total holding under SIF should remain at or above ₹10 lakh.

AMCs monitor the ₹10 lakh threshold daily. In the case of a passive breach (for example, when the value falls below the threshold due to a decline in NAV), it is not treated as a violation, and the only option is full redemption of the balance. 

For an active breach (where an investor’s own transactions reduce the holding below ₹10 lakh), AMCs must prevent investor redemptions. If it still occurs, the account is frozen, the investor gets up to 30 calendar days to top up, and if the level is not restored, the units are fully redeemed.

Eligibility Criteria for Specialised Investment Funds

SIFs are not open to all fund houses. SEBI has defined two routes for eligibility:

Route 1: Sound track record

• A mutual fund has been in operation for at least 3 years, and has an average AUM of not less than ₹10,000 crore immediately preceding 3 years.

• No action has been initiated or taken against the sponsor or AMC under Sections 11, 11B or 24 of the SEBI Act, 1992 during the last 3 years.

Route 2: Experienced team

• The AMC appoints a Chief Investment Officer for the SIF with at least 10 years of fund-management experience, who has managed an average AUM of not less than ₹5,000 crore.

• The AMC also appoints an additional Fund Manager with at least 3 years of fund-management experience, who has managed an average AUM of not less than ₹500 crore.

• No action has been initiated or taken against the sponsor or AMC under Sections 11, 11B or 24 of the SEBI Act, 1992 during the last 3 years. 

Key Benefits of Investing in Specialised Investment Funds

Investment in an SIF can be a worthwhile decision if you are an institutional investor or an HNI (High Net-Worth Individual) looking for a better option than traditional mutual funds. Here are its key benefits:

• Access to Niche Markets: SIFs open the door to investment spaces such as REITs/InvITs, commodity derivatives, and other alternative assets, which are often beyond the reach of traditional funds.

• Diversification for Stability: SIFs help strengthen portfolio resilience and reduce volatility by including alternative assets alongside traditional sectors.

• Flexibility in Strategies: Unlike mutual funds, SIFs allow investors to choose strategies tailored to their goals, timelines, and risk appetite, offering more control over investment decisions.

• Expert Management: Experienced professionals oversee these funds, ensuring informed and strategic allocation of your capital.

• Backed by SEBI Regulations: Operating under SEBI’s framework, SIFs offer a balance of innovation with regulatory safeguards, giving investors confidence in their safety.

Specialised Investment Funds Investment Strategies

An SIF investment strategy may be a close-ended, open-ended, or interval scheme, with subscription and redemption frequency specified in the offer document. The tables below outline investment strategies allowed to be launched under SIF:

1. Equity-Oriented Investment Strategies

   For the Equity-Oriented SIF, redemption may happen daily or at a lower frequency as determined by the AMC. The investment approach can be explained as follows:

   Category of Investment Strategy	Description
   Equity Long-Short Fund	At least 80% of the portfolio should be in equity, with up to 25% permitted for short exposures using unhedged equity and equity-related derivatives.
   Equity Ex-Top 100 Long-Short Fund	At least 65% of the portfolio should be invested in stocks ranked outside the top 100 by market cap; short exposure limited to 25% via unhedged equity and equity-related derivatives.
   Sector Rotation Long-Short Fund	Minimum 80% of the portfolio must be allocated across 4 sectors, with up to 25% short exposure at the sector level using unhedged equity and equity-related derivatives.

2. Debt-Oriented Investment Strategies

   In the case of a Debt-Oriented SIF, redemptions may be permitted every week or at a lower frequency, as specified by the AMC. The investment approach can be outlined as follows:

   Category of Investment Strategy	Description
   Debt Long-Short Fund	Investments happen in debt instruments with short positions taken through exchange-traded debt derivatives.
   Sectoral Debt Long-Short Fund	The portfolio should cover debt instruments from at least two sectors, with up to 75% allotted to any one sector. Short exposure through unhedged debt derivatives is capped at 25%.

3. Hybrid Investment Strategies

   For Hybrid SIFs, redemptions may be allowed twice a week or at a lower frequency, as determined by the AMC. The investment approach can be explained as follows:

   Category of Investment Strategy	Description
   Active Asset Allocator Long-Short Fund	Flexible investment across equity, debt, derivatives, REITs or InvITs, and commodity-linked derivatives. Unhedged short exposure up to 25%.
   Hybrid Long-Short Fund	At least 25% of the portfolio is allocated to equity, and at least 25% to debt. Short positions up to 25%.

Note: Each SIF category permits only one strategy to keep offerings streamlined.

Key Portfolio Limits for Specialised Investment Funds

To ensure diversification and manage concentration risk, SEBI prescribes the following exposure caps for SIF investment strategies:

• Equity single-issuer limit: Not more than 10% of the NAV of an investment strategy may be invested in the equity shares of a single company.

• Debt and money market issuer limits: Exposure to a single issuer is capped at 20% for AAA, 16% for AA, and 12% for A and below. These limits may be increased by up to 5% with prior approval of the Board of Trustees and the AMC Board.

• Sector cap in debt: Investment in debt instruments of any single sector cannot exceed 25% of NAV.

• Group exposure in debt: Aggregate exposure to debt instruments of companies within the same group cannot exceed 20% of NAV.

• Unhedged short exposure: Unhedged short positions through exchange-traded derivatives are limited to 25% of net assets for all long-short strategies.

Note: These limits apply at the investment strategy level within the SIF.

How to Invest in Specialised Investment Funds?

If you’re considering adding SEBI specialised investment funds to your portfolio, it’s important to know the basics before getting started:

• Minimum investment: ₹10 lakh at the PAN level across all SIF strategies of the same AMC. Accredited investors are exempt. SIP, SWP and STP are allowed if the aggregate stays at or above ₹10 lakh.

• Investment strategies: Equity, debt and hybrid long-short strategies are available. Subscription and redemption frequency are specified in the offer document. Close-ended and interval strategies are listed on exchanges.

• Regulatory framework: SIFs are regulated by SEBI. AMCs monitor the ₹10 lakh threshold daily. Active breaches lead to an account freeze, a 30-day top-up window and full redemption if not restored.

• Offer documents: Read the SIF Application and the Investment Strategy Information Document. Check objectives, risks, fees, minimums, dealing frequency, and notice periods.

• Onboarding and suitability: Complete KYC and ensure the strategy aligns with your goals, horizon and risk tolerance.

Branding & Promotion Rules for Specialised Investment Funds

To make sure SIFs stand apart from mutual funds, the SEBI has set the following guidelines:

• Distinct identity: The SIF must have its brand name and logo, separate from the mutual fund brand.

• Limited use of MF or sponsor brand: For the first five years, an AMC may reference the mutual fund or sponsor using phrases such as “brought to you by” or “offered by.”

• Font-size requirement: Wherever the MF or sponsor brand is referenced, its name must appear in a font equal to or smaller than the SIF brand name across offer documents, presentations, advertisements, and other investor communications.

• Separate web presence: The SIF must be hosted on a separate website or a clearly labelled dedicated webpage distinct from the AMC’s mutual fund pages.

• Clear differentiation in communications: All advertisements, promotional materials, and investor documents must clearly distinguish SIF offerings from mutual fund schemes and follow the applicable MF advertising and disclosure standards.

Factors to Consider When Investing in Specialised Investment Funds

The following considerations can help guide your SIF investing decision:

• Align Time Horizon With Strategy: SIFs are designed for medium to long horizons. Interval and close-ended strategies may not suit short-term liquidity needs.

• Acknowledge Higher Risk and Volatility: Long-short and derivative use can increase return dispersion. Be comfortable with drawdowns and strategy-specific risks.

• Understand Liquidity and Exit Terms: The offer document specifies the Subscription and redemption frequency. Equity strategies allow daily dealing. Debt is at least weekly. Hybrid is at least twice weekly. Interval and close-ended strategies are listed to provide an exit route. Some strategies may specify notice periods.

• Check Strategy Fit and Concentration: Confirm the strategy’s sector limits, short-exposure cap, and single-issuer limits. Ensure these align with your risk appetite and existing portfolio.

• Review Costs and Operational Terms: Read the application and the Investment Strategy Information Document for fees, minimum dealing sizes, cut-off times, valuation, and any temporary limitations on subscriptions or redemptions.

• Confirm KYC, Eligibility, and Accreditation: Complete KYC and ensure you meet entry requirements. Accredited investors are exempt from the ₹10 lakh minimum, but suitability checks still apply.

Key Takeaways

A Specialised Investment Fund is a distinct investment product under the mutual funds regulations with “Investment strategies”. It allows AMCs to offer equity, debt and hybrid long-short strategies. Investors must maintain a minimum of ₹10 lakh per PAN per AMC, while accredited investors are exempt; SIP, SWP and STP are permitted if the threshold is maintained. Unhedged short exposure is capped at 25%. Liquidity varies by category, with interval and close-ended schemes listed on exchanges. SIFs balance the flexibility of mutual funds with lower entry costs than PMS. As a first step in your investment journey, you can start SIP in the best mutual funds in India to cultivate a long-term and disciplined investment habit.