Explainer | Specialised investment fund: How this new asset class will work and help investors

The minimum investment threshold in the asset class would be Rs 10 lakh across strategies, except for accredited investors.

The Securities and Exchange Board of India (Sebi) has introduced a new asset class called the Specialised Investment Fund (SIF), which will allow mutual funds (MFs) to offer advanced investment strategies to investors with higher risk appetite.

This new asset class, positioned between MFs and Portfolio Management Services (PMSes), will open different investment products, styles and approaches.

The bouquet of products on offer now include MFs schemes ranging from Rs 10 to PMSes with a ticket size of Rs 50 lakh and Alternative Investment Funds (AIFs) with a minimum investment value of Rs 1 crore.

What do SIFs offer?

They enable MFs to implement advanced investment strategies through open-ended, closed-ended, or interval structures.

Sebi had earlier said that the absence of investment products between PMSes and MFs has inadvertently nudged many investors, especially young investors, towards unregistered and unauthorised investment schemes or entities.

The minimum investment threshold in this asset class would be Rs 10 lakh across strategies, except for accredited investors.

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Who are accredited investors?

Accredited investors are a class of investors who understand various financial products and the risks and returns associated with them, and, therefore, are able to take informed decisions. They are recognised by securities and financial market regulators around the globe.

The fund managers of SIFs must have the relevant National Institute of Securities Markets (NISM) certification.

How does an SIF differ from an MF?

With a minimum investment ceiling of Rs 10 lakh, SIFs allow asset managers to allocate up to 15 percent in a single security — significantly higher than the 10 percent limit under traditional MF schemes. For fixed-income strategies, exposures can now extend to 20 percent in a single issuer, with the possibility of increasing this to 25 percent through board approvals.

For fixed-income strategies, the permissible higher limit in the case of a single issuer is 10 percent as now.

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Further, when it comes to expense ratio and fees, the cost structure would be similar to a mutual fund.

At present, your equity fund can charge a maximum TER (total expense ratio) of 2 percent for the first Rs 250 crore. Thereafter, the cost comes down to 1.75 percent for the next Rs 1,250 crore, 1.60 percent for Rs 1,500-3,000 crore, and so on. Over and above the TER, your fund can also charge other expenses.

A notable development in the case of SIFs is the doubling of permissible investment limits for REITs (Real Estate Investment Trusts) and INVITs (Infrastructure Investment Trusts) to 20 percent, offering greater allocation flexibility and new avenues for diversification.

In case of MFs, the single issue limit across schemes for REITs and INVITs stands at 10 percent.

According to Santosh Joseph, Co-founder and Chief Executive Officer of Germinate Investor Services, the newly introduced SIF marks a significant evolution in India's investment landscape.

“The asset class offers enhanced flexibility for portfolio managers and broader opportunities for high networth individuals (HNIs) and experienced investors,” he said.

Can an SIF offer derivatives as an investment strategy?

MFs, as of now, cannot offer derivatives as an investment strategy, but only for hedging and portfolio rebalancing purposes.

In a draft proposal earlier this year, Sebi had suggested allowing the new asset class to take exposure in derivatives. However, the framework is silent on derivatives—a critical aspect of modern portfolio management.

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“Given India's prominence in global derivatives volumes, clarity in this area could further strengthen the appeal and versatility of SIFs,” said Joseph.

In the draft proposal, Sebi also used another example of differentiated products like 'Inverse ETFs' that can be offered by SIFs. However, the gazette notification dated December 16 didn’t mention any such product.

Will SIFs help investors?

According to experts, the SIF framework empowers portfolio managers to create tailored, innovative products with broader exposure limits, enabling investors to pursue unique and customised strategies aligned with their risk appetite and financial goals.

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“The new asset class will offer differentiated offerings to investors as funds may be able to develop strategies not available on the MF platforms. Concentration will be the order of the thing. Also, an SIF can create differences on the active thematic side. One more area which might get a leg-up under SIFs could be credits, which have a lot of restrictions on the mutual fund side,” said Kunal Valia, Founder, StatLane, a Sebi-registered Research Analyst.

Meanwhile, Joseph feels that as an evolving asset class, the SIF is a pivotal addition to India's investment ecosystem, blending flexibility, higher exposure limits, and diversification potential to meet the growing sophistication of investor needs.

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