SEBI releases regulatory framework for Specialized Investment Funds; to come into effect April 1

The SIF, according to SEBI is designed to offer greater portfolio flexibility compared to traditional mutual funds while maintaining regulatory oversight.

The Securities and Exchange Board of India (SEBI) has released a framework for the new category of investment product, the Specialized Investment Fund (SIF), The category, according to SEBI aims to bridge the gap between Mutual Funds (MFs) and Portfolio Management Services (PMS). The new framework is set to come into effect from April 1, 2025.

The SIF, according to SEBI, is designed to offer greater portfolio flexibility compared to traditional mutual funds while maintaining regulatory oversight.

According to the circular, the key highlights include:

1. Eligibility Criteria: AMCs with at least three years of operation and an average asset under management (AUM) of Rs 10,000 crore over the past three years can launch SIFs. Firms can also qualify if they appoint experienced fund managers with significant AUM management experience.

2. Investment Strategies: According to the circular, the framework permits various equity, debt, and hybrid long-short investment strategies. Investors must maintain a  minimum investment of Rs 10 lakh across all strategies under an SIF.

The circular also notes that SIFs must have distinct branding separate from their parent mutual fund, though they may use the AMC’s name for initial recognition.

3. Investing in Derivatives: According to the circular, investment strategies under SIF are allowed to take exposure of up to 25 percent of net assets in permissible exchange-traded derivative instruments, specifically for purposes beyond hedging and portfolio rebalancing.

4. Subscription & Redemption: According to the circular, the subscription and redemption frequency of investment strategy under SIF may be based on the nature of investments, including daily, weekly, fortnightly, monthly, quarterly, annually, fixed maturity, or other suitable intervals.

5. On Benchmarking: Under the framework, the investment strategies of SIF shall follow a single-tier benchmark structure. The AMCs shall select any of broad market indices available, as a benchmark index depending on the investment objective and portfolio of the investment strategy. The circular notes that equity oriented investment strategies shall be compared against a suitable broad market index such as BSE Sensex or NSE Nifty or BSE 100 or CRISIL 500 etc.

6. Offering SIPs and STPs: Under the regulation, AMCs may offer systematic investment options such as Systematic Investment Plan, Systematic Withdrawal Plan and Systematic Transfer Plan for investment strategies launched under the SIF, while ensuring compliance with the Minimum Investment Threshold.

7. On distribution: Distributors or entities that are currently engaged in the distribution of Mutual Fund products, shall also be eligible to offer products under the SIF, according to the framework. But it adds that this is subject to having passed the National Institute of Securities Markets (‘NISM’) Series-XIII: Common Derivatives Certification Examination. AMFI and the AMC have been designated to ensure that their agents and distributors will need to ensure compliance.

The Association of Mutual Funds in India (AMFI) has been directed to issue necessary guidelines and facilitate implementation by March 31, 2025. Stock exchanges and clearing corporations must also update their rules accordingly.

(This is a developing story)