What is SIF in Mutual Funds? How to invest, Features, Eligibility

In the finance world, the wider the option choices, the more flexibility on making decisions. In mutual funds, we have heard about SIP, and there is another term called SIF in mutual funds. This helps you as an investor to change investments based on your personal interest, market risk, and life situations. In this article, we will look at what is SIF in mutual funds, its features,  SEBI guidelines, and others. Let’s understand more and continue reading the article.

What is SIF?

SIF full form stands for Specialised Investment Fund (SIF) in Mutual Fund, which is a type of asset class specifically designed with advanced investment strategies for investors. This acts like a bridge between mutual funds and portfolio management services (PMS), offering high-risk and high-reward opportunities for seasoned investors in specific sectors.

Key Features of SIF Investments

Some of the key features of SIF Investments are:

• Minimum Investment Requirement: Investors should commit at least Rs. 10 lakh across all SIF strategies under a single PAN, ensuring participation. 

• Advanced Investment Strategies: SIFs undertake complex strategies like equity long-short, sector rotation, and hybrid funds while offering flexibility beyond traditional mutual funds.

• Eligibility Criteria for AMCs: Only AMCs with at least a three-year track record and significant AUM with certain criteria are preferred. This ensures competent management to look after the invested funds.

• Distinct Branding and Disclosure: SIFs must have separate branding, including unique names and logos, and maintain dedicated websites to distinguish them from regular mutual funds. 

• Improved Investment Flexibility: They permit investments in REITs and InvITs, thus broadening diversification options. 

• Regulatory Oversight: SIFs operate under SEBI's regulatory framework and ensure transparency, investor protection, and compliance with risk mitigation strategies.

SIF vs Mutual Funds

As we looked at the features, we will look at the difference between SIF and Mutual Funds in the table below.

Eligibility Criteria for Launching a Specialized Investment Fund (SIF)

To establish a specialised investment fund, an asset management company (AMC) must meet the requirements under either of the following two routes:

• Route 1: The mutual fund must have been operational for at least three years, with an average Asset Under Management (AUM) of Rs. 10,000 crore or more during the immediately preceding three-year period. Along with that, there should have been no regulatory actions initiated or taken against the AMC under Sections 11, 11B, or 24 of the SEBI Act, 1992 in the past three years.

• Route 2: The AMC must appoint qualified key personnel for the SIF. A Chief Investment Officer (CIO) with a minimum of 10 years of fund management experience, who has managed an average AUM of at least Rs. 5,000 crore. An additional fund manager with at least 3 years of experience and an average AUM of at least Rs. 500 crore under management. Similar to Route 1, there must be no regulatory actions taken or pending under Sections 11, 11B, or 24 of the SEBI Act against the sponsor or AMC within the last three years.

Additional Requirements: 

• The AMC may share operational resources across its mutual fund and SIF businesses.

• A registered mutual fund seeking to launch an SIF must submit an application to SEBI for prior approval, following the procedure specified by SEBI.

Minimum Investment Requirement to Invest in SIF

• Investors must invest a minimum of Rs. 10 lakh across all investment strategies under an SIF with the Permanent Account Number (PAN). This threshold is mandatory unless the investor is classified as an accredited investor, in which case the requirement doesn’t apply.

• The minimum investment requirement of Rs. 10 lakh applies solely to SIF investments and does not count any investments the investor may hold in the AMC’s regular mutual fund schemes.

• AMCs can provide systematic options like SIPs, SWPs, and STPs for SIF strategies, as long as they ensure compliance with the minimum investment threshold limit.

SEBI's Guidelines for Specialised Investment Funds

We will look at the investment strategies laid out by SEBI for the specialised investment funds. 

Equity-Oriented Investment Strategies

1. Equity Long-Short Fund

• The AMC must invest at least 80% of the fund into equity and equity-related instruments.

• They can take short positions up to 25% using derivatives.

• Investors can withdraw on a daily basis or even more frequently if decided by AMC.

2. Equity Ex-Top 100 Long-Short Fund

• The fund manager must invest at least 65% in stocks that are not in the top 100 by market cap.

• They can take short positions up to 25% using derivatives in equity and related instruments other than large-cap stocks.

• Investors can redeem funds daily or more often as decided by the AMC.

3. Sector Rotation Long-Short Fund

• The AMC must invest at least 80% in stocks, a maximum of 4 sectors.

• They can short up to 25% through derivatives in equity and equity-related instruments, but if they short a particular sector, the fund should short all stocks related to that particular sector.

• Investors can redeem funds daily or more often as decided by the AMC.

Debt-Oriented Investment Strategies

1. Debt Long-Short Fund

• The fund manager must invest in various types of debt across different periods.

• They can also take unhedged short positions using exchange-traded debt derivative instruments.

• Investors can redeem their funds at least once a week or more often if AMC decides.

2. Sectoral Debt Long-Short Fund

• The AMC must invest in at least two different sectors through debt instruments.

• Investment concentration on a single sector is maximised to 75%.

• They can take short positions up to 25% using derivatives in debt instruments.

• Short exposure shall be across the sector and applicable to all instruments of the particular sector. Let’s say, if they short the auto sector, they must short all auto-related bonds in the fund.

• Investors can redeem at least once a week, or more often if decided by the AMC.

Hybrid Investment Strategies

1. Active Asset Allocator Long-Short Fund

• The fund manager must invest the funds across various segments such as equity, debt, equity and debt derivatives, Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), and commodity derivatives.

• They can short up to 25% using derivatives on equity and debt instruments.

• Investors can redeem twice a week, or more frequently if decided by the AMC.

2. Hybrid Long-Short Fund

• The fund manager must invest up to 25% in equity and debt, and other related instruments each.

• They can short up to 25% using derivatives on equity and debt instruments.

• Investors can redeem twice a week, or more frequently if decided by the AMC. 

To avoid an increase in investment strategies and in line with the approach followed for the categorisation of the mutual fund schemes, only one investment strategy is permitted to be launched under each category mentioned above. 

Benchmark for Investment Strategies

As we looked into the investment strategies laid out by SEBI, we will understand the benchmark for those.

• SIF investment strategies will follow a single-tier benchmark structure. However, the AMC may, at its option, provide a second-tier benchmark, which is similar to mutual fund schemes as mentioned in SEBI’s Master Circular under paragraph 1.9.

• The AMC must select a relevant broad market index as its benchmark, which is based on the investment strategy’s objective and portfolio composition.

• The following principles should guide the selection of benchmarks:

1. Equity-oriented strategies: BSE Sensex, NSE Nifty, BSE 100, or CRISIL 500, depending on relevance.

2. Debt-oriented strategies: Benchmarked against a broad debt market index that reflects their strategy for its underlying portfolio.

3. Hybrid strategies: Benchmarked against appropriate hybrid or composite indices, wherever such benchmarks are available.

Who can Invest in SIFs?

• High Net-Worth Individuals (HNIs): They are experienced investors who hold significant capital and are often risk takers. They seek higher returns on their capital and expect to beat market returns.

• Non-Resident Indians (NRIs) and Foreign Investors: Non-Resident Indians and certain foreign investors hold a similar ability to HNIs. They can invest in SIFs if they need significant exposure and diversification across assets and geography, provided they meet SEBI guidelines.

• Accredited Investors: These would include individuals or institutions certified based on financial knowledge, assets, or income, allowing them access to products and understanding the risks of investing.

How to Invest in SIFs in India

Investors must invest at least Rs. 10 lakh across all strategies within a specialised investment fund under a single PAN, unless they are accredited investors who are exempt from this requirement. Only SEBI-registered mutual funds that either have a solid operational history or appoint a qualified fund management team as per SEBI guidelines are allowed to offer SIFs. The investors can choose to invest through different modes, such as lump sum, Systematic Investment Plans (SIPs), Systematic Transfer Plans (STPs), or Systematic Withdrawal Plans (SWPs).

Currently, the Securities and Exchange Board of India (SEBI) has received the first two applications for SIFs and is expected to approve them in the near future.

Risk-Band Disclosure for SIF Investment

Specialised investment funds will display the potential risk of their investment strategies using a visual risk indicator known as the risk band. This meter categorises risk from Level 1 (Lowest Risk) to Level 5 (Highest Risk). The SIF must assign a suitable risk level at the time of launching a new fund offer. Any changes must be communicated to the investors.

Conclusion

As we conclude, Specialised Investment Funds bring a new layer of choice and flexibility for experienced investors who want more than traditional mutual fund options. They offer advanced strategies and wider diversification but come with higher risks and a minimum investment requirement. SIFs aim to bridge the gap between mutual funds and portfolio management services (PMS). So, if you’re an informed investor, you can explore SIFs while understanding the risks and consult a financial advisor before investing.

FAQs

Q. Who offers SIF in India?

SIFs are offered by SEBI-registered Asset Management Companies (AMCs) that have a strong operational track record and have appointed experienced fund managers, as per SEBI guidelines.

Q. What is SIF full form?

SIF stands for Specialised Investment Fund. It is a mutual fund category designed for advanced strategies and experienced investors, bridging the gap between traditional mutual funds and portfolio management services (PMS).

Q. What is the minimum investment for SIF?

The minimum investment required in SIFs is Rs.10 lakh across all strategies under one PAN. This threshold does not apply to accredited investors who meet SEBI's exemption criteria.

Q. How is SIF taxed in India?

SIFs are regulated under mutual fund rules, so gains from SIFs can be taxed as applicable to mutual fund categories such as equity or debt, depending on the fund’s composition. For equity-oriented funds, the STCG is 15% and the LTCG is 10%, and for debt-oriented funds, the STCG is taxed at the slab rate and the LTCG is taxed at 20% (indexation benefit).