March 3, 2025 Enrichwise Digital

A Guide to Specialized Investment Funds (SIFs)

India’s investment landscape is rapidly evolving, and Specialized Investment Funds (SIFs) are the latest addition to the financial ecosystem. Introduced by SEBI, SIFs offer customized investment strategies with strong regulatory oversight, bridging the gap between Mutual Funds (MFs) and Portfolio Management Services (PMS).

But what exactly are SIFs? How do they work, and why are they gaining attention? This guide will break down everything you need to know about SIFs, including their benefits, investment strategies, eligibility criteria, and potential risks.

If you’re looking for a well-regulated yet flexible investment option, read on to discover whether SIFs are the right choice for you.

What Are SIFs?

Specialized Investment Funds (SIFs) are SEBI-regulated investment vehicles designed for high-net-worth investors seeking diversified, sophisticated, and tailored investment strategies.

Unlike traditional mutual funds, which follow standardized mandates, SIFs provide:

  • More flexibility in investment decisions.
  • Stronger regulatory oversight compared to PMS.
  • Tailored investment strategies for different market conditions.

SIFs aim to offer the best of both worlds through structured investment options like mutual funds with the customization potential of PMS.

Why Did SEBI Introduce SIFs?

Before SIFs, investors had two primary choices:

  1. Mutual Funds – Highly regulated but with rigid investment structures.
  2. Portfolio Management Services (PMS) – More flexibility but less regulatory protection.

SIFs were created to fill this gap by offering customized investment options under a transparent and well-regulated framework.

How Are SIFs Different from AIFs, Mutual Funds, and PMS?

SIFs vs. Mutual Funds

  • Mutual funds have standardized investment mandates, whereas SIFs offer customized portfolio strategies.
  • SIFs require a higher minimum investment (₹10 lakh) compared to mutual funds.
  • SIFs allow for sophisticated investment strategies, such as long-short funds, which mutual funds typically do not offer.

SIFs vs. PMS

  • PMS allows personalized investment portfolios, while SIFs operate within SEBI’s mutual fund framework.
  • SIFs provide structured risk management, whereas PMS lacks standardized investor protections.

SIFs vs. Alternative Investment Funds (AIFs)

  • AIFs cater to venture capital, hedge funds, and private equity, while SIFs focus on equity, debt, and hybrid strategies.
  • SIFs operate under mutual fund regulations, whereas AIFs follow a separate SEBI framework.

If you want more flexibility than mutual funds but with SEBI oversight, SIFs may be the right fit.

Who Can Invest in SIFs?

SIFs are not designed for retail investors. Instead, they target:

  • High-net-worth individuals (HNIs).
  • Institutional investors.
  • Accredited investors.

Minimum Investment Requirement

  • Investors must commit at least ₹10 lakh per strategy.
  • If holdings drop below this limit due to redemptions, the entire investment must be exited.

Systematic Investment Options (SIPs, SWPs, STPs)

  • SIPs (Systematic Investment Plans), SWPs (Systematic Withdrawal Plans), and STPs (Systematic Transfer Plans) are allowed.
  • However, every transaction must comply with the ₹10 lakh threshold.

These investment conditions make SIFs an exclusive option for experienced investors.

Who Can Distribute SIFs?

Only certified financial professionals can distribute SIFs:

  • Mutual fund distributors and agents with the NISM Series-XIII: Common Derivatives Certification.
  • AMFI and AMCs must ensure compliance with SEBI guidelines.

This ensures that investors receive expert guidance.

How Can Asset Management Companies (AMCs) Launch SIFs?

SEBI has strict eligibility requirements to ensure that only credible AMCs can offer SIFs. AMCs must qualify through one of the following routes:

Route 1: AUM-Based Eligibility

  • The AMC must have operated for at least three years.
  • It must have maintained an average Assets Under Management (AUM) of ₹10,000 crore or more in the last three years.

Route 2: Experience-Based Eligibility

  • The AMC must appoint a Chief Investment Officer (CIO) with at least 10 years of experience managing an AUM of ₹5,000 crore or more.
  • Additionally, it must appoint a fund manager with at least three years of experience managing an AUM of ₹500 crore.

This ensures that only seasoned professionals manage SIFs.

Investment Strategies Offered by SIFs

SEBI allows SIFs to implement three broad categories of investment strategies:

1. Equity-Oriented Strategies

  • Equity Long-Short Fund – Invests at least 80% in equities with a 25% short position limit.
  • Equity Ex-Top 100 Long-Short Fund – Excludes large-cap stocks while maintaining a 65% equity allocation.
  • Sector Rotation Long-Short Fund – Focuses on a maximum of four sectors.

2. Debt-Oriented Strategies

  • Debt Long-Short Fund – Uses dynamic fixed-income exposure.
  • Sectoral Debt Long-Short Fund – Focuses on two or more sectors, with a 75% per sector limit.

3. Hybrid Strategies

  • Active Asset Allocator Long-Short Fund – Dynamically allocates across equity, debt, REITs, and commodities.
  • Hybrid Long-Short Fund – Requires at least 25% exposure to both equity and debt.

Each SIF can offer only one strategy per category, ensuring clear investment objectives.

Risk Management and Investment Limits

SEBI has imposed strict investment limits to minimize risk:

  • Debt Exposure Limits

    • AAA-rated securities: Max 20% per issuer.
    • AA-rated securities: Max 16% per issuer.
    • A-rated & below: Max 12% per issuer (5% extension possible with trustee approval).

  • Derivatives Exposure

    • Unhedged short positions allowed up to 25% of net assets.
    • Offsetting derivatives positions only permitted for the same underlying security and expiry date.

These controls help investors manage risk while maximizing returns.

Subscription & Redemption Process

SIFs offer flexible subscription and redemption options:

  • Daily, weekly, or monthly redemption cycles.
  • Fixed maturity-based exits for long-term investors.
  • Up to 15 working days’ notice required for redemptions.

For liquidity, closed-ended and interval SIFs must be listed on stock exchanges.

Performance Benchmarks & Transparency

Benchmarking Standards

  • Equity strategies use indices like Nifty 500 or BSE Sensex.
  • Debt strategies align with bond indices.

Disclosure Requirements

  • Portfolio updates every two months.
  • Scenario-based risk assessments in offer documents.
  • A standardized risk band similar to the mutual fund riskometer.

These measures ensure transparency and informed decision-making.

Should You Invest in SIFs?

SIFs offer a powerful alternative to mutual funds and PMS. They are ideal for investors who:

  • Want flexible, structured investment options.
  • Prefer SEBI-regulated investment frameworks.
  • Can invest at least ₹10 lakh.
  • Seek risk-adjusted returns with customized strategies.

As SIFs roll out in India, they will become a go-to investment vehicle for sophisticated investors looking for growth, diversification, and structured risk management.

To explore how this strategy could work for you, connect with us today.
Contact +919821860804 or email planner@enrichwise.com

Kapil Jain is the Director of Enrichwise Financial Services Pvt. Ltd and Enrichwise Insurance Broking Services Pvt. Ltd., an IIM Indore Gold Medalist in Finance and an investor for 25+ years.

Disclaimer: Mutual Fund investments are subject to market risks. Read all scheme-related documents carefully before investing. This article is for informational purposes only and does not constitute investment advice. Tax benefits are subject to changes in law. Enrichwise is an AMFI-registered Mutual Fund Distributor (MFD).

 

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