Explained: What does Sebi’s new asset class Specialized Investment Fund offer
Feb 28, 2025
Synopsis
A mutual fund registered with SEBI regulations can set up an SIF, provided it has been operational for at least three years and has maintained an average assets under management (AUM) of Rs 10,000 crore over the past three years, or by following the alternate route.
The market regulator Sebi has introduced a Specialized Investment Fund (SIF) framework to bridge the gap between mutual funds (MFs) and portfolio management services (PMS) and it aims to provide sophisticated investors with more flexible investment opportunities while ensuring regulatory oversight. The new framework will be effective from April 1, 2025.
Eligibility Criteria for SIFs
A mutual fund registered under SEBI regulations may establish an SIF subject to fulfilling that the fund must have been in operation for at least three years with an average assets under management (AUM) of Rs 10,000 crore in the last three years or through the alternate route.
In an alternate route, the asset management company (AMC) must appoint a Chief Investment Officer (CIO) with at least 10 years of experience managing Rs 5,000 crore, and a fund manager with a minimum of three years of experience managing Rs 500 crore.
Branding and Advertising Guidelines
To differentiate SIFs from mutual funds, SEBI mandates that AMCs must create a separate brand identity for their SIF offerings. While they can use the sponsor’s brand name for the first five years, it must be accompanied by phrases like “brought to you by” or “offered by” to maintain clarity. Additionally, SIFs must have their own dedicated website or webpage to prevent confusion with regular mutual fund schemes and AMCs shall ensure that the SIF has a distinct brand name and distinct logo, separate from that of its regular mutual fund.
Investment Strategies Under SIFs
SIFs will offer multiple investment strategies across equity, debt, and hybrid asset classes. There will be three equity-oriented investment strategies - equity long-short fund, equity ex-top 100 long-short fund, and sector rotation long-short fund.
In Equity Long-Short Fund, the minimum investment in equity and equity-related instruments will be 80% and the maximum short exposure through unhedged derivative positions in equity and equity-related instruments will be 25%.
In Equity Ex-Top 100 Long-Short Fund, the minimum investment in equity and equity-related instruments of stocks excluding top 100 stocks by market capitalization will be 65% and maximum short exposure through unhedged derivative positions in equity and equity-related instruments of other than largecap stocks will be 25%
In Sector Rotation Long-Short Fund, minimum investment in equity and equity-related instruments of a maximum 4 sectors will be 80%, and maximum short exposure through unhedged derivative positions in equity and equity-related instruments will be 25%
Similarly, debt will have two investment strategies - debt long-short fund and sectoral debt long-short fund. Hybrid will also have two investment strategies - hybrid long-short fund and hybrid long-short fund.
To prevent excessive fund proliferation, SEBI has restricted AMCs to one investment strategy per category.
Minimum investment requirement
The minimum investment in SIFs is Rs 10 lakh per investor, which must be maintained across all investment strategies at the PAN level. The minimum investment threshold shall apply exclusively to investments under SIF and shall not include investments made by the investor in regular MF schemes of the same AMC.
The AMC 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.
The AMC shall ensure that the investor's total investment value does not fall below the minimum investment threshold due to redemption transactions initiated by the investor. If the total investment value falls below the threshold due to a passive breach, the investor shall only be permitted to redeem the entire remaining investment amount from the SIF
Investment restrictions
An investment strategy under SIF shall not invest more than 20% of NAV in AAA-rated debt, 16% in AA-rated debt, and 12% in A-rated and below. Not invest more than 25% of its NAV in debt and money market securities of a particular sector
Subscription, Redemption, and Listing
SIFs can be open-ended, close-ended, or interval-based investment strategies. The subscription and redemption frequency of investment strategy under SIF may be based on the nature of investments including suitable intervals.
The subscription frequency and redemption frequency of an investment strategy may be distinct from each other.
Benchmarking
The investment strategies of SIF shall follow a single-tier benchmark structure. 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.
Debt oriented investment strategies shall be compared with a suitable broad market index that is a representative of the fund’s portfolio whereas hybrid investment strategies shall be compared with suitable broad market benchmark wherever available.
[The Economic Times]
