Specialised Investment Funds: Know All About Sebi’s Newly Introduced Asset Class

The Securities and Exchange Board of India (Sebi) released a circular detailing the framework for a new asset class called Specialised Investment Funds (SIF) on February 27, 2025. The market regulator had initially proposed the introduction of the new asset class in July, 2024.

Sebi said that over the over the years a gap has emerged between mutual funds and portfolio management services (PMS) in terms of flexibility. Sebi added that it has now introduced the new asset class to bridge the gap by amending the Sebi (Mutual Funds) Regulations, 1996.

Here’s a look at some key things investors should know about the newly introduced asset class:

Why Were SIFs Launched

Sebi said in its circular that the financial market has seen an expansion in recent years with the launch of multiple products with varying degrees of risk, complexity, and regulatory oversight. The regulator said that SIFs have been launched to provide portfolio flexibility, ensure regulatory compliance and provide investor protection.

Implementation Timeline For SIFs

The regulatory framework will come into force from April 1, 2025. Sebi said that the Association of Mutual Funds In India (Amfi) will also issue necessary guidelines and standards as required under the circular by March 31, 2025.

Minimum Amount Required For Investing In SIFs

Investors can subscribe to SIFs by making a minimum investment of Rs 10 lakh across all investment strategies. The circular stated that asset management companies (AMCs) can offer investment in SIFs through systematic investment plans (SIPs), systematic withdrawal plans (SWPs), and systematic transfer plans (STPs).

Notably, the regulator has exempted accredited investors from the minimum investment amount limit.

Subscription And Redemption

The subscription and redemption frequency of SIF will be based on the nature of investments and can range from daily, weekly, fortnightly, monthly, quarterly, annually, fixed maturity, or at other suitable intervals.

The market regulator said that the redeeming investor will either receive the value of units sold based on the fund’s net asset value (NAV) at the end of the notice period. The regulator added that the maximum duration of the notice period shall not exceed 15 working days. Notably, SIFs which are closed-end or deploy interval investment strategies, need to be listed on a recognised stock exchange.

What Can SIFs Invest In

SIFs can offer three categories of investment strategies which include equity-oriented strategies, debt-oriented strategies and hybrid strategies. Equity-oriented strategies invest primarily in equity and derivatives. The current framework allows only one strategy per category per SIF.

Among equity oriented strategies, SIFs can invest in the equity long-short fund, equity ex-top 100 long-short fund and sector rotation long-short fund.

SIFs can also invest in debt-oriented strategies such as the debt long-short fund and sectoral debt long-short fund. SIFs can also invest in hybrid strategies which combine multiple asset classes, such as the active asset allocator long-short fund and hybrid long-short fund.

The regulator has also allowed SIFs to take unhedged short positions in derivatives up to 25 per cent of their net assets. The circular added that offsetting of derivatives positions is allowed only if they are on the same underlying security with the same expiry date.

Cap On Exposure To Debt

Sebi has also imposed a cap on the exposure which SIFs can have to debt and money market securities. SIFs can have 20 per cent exposure to debt and money market securities if they are AAA-rated, 16 per cent if AA-rated, 12 per cent if A-rated or below. However, an additional 5 per cent extension is allowed with trustee approval. The regulator has also placed a sectoral exposure cap of 25 per cent of NAV for debt investments.

Rules For AMCs Who Establish SIFs

The market regulator said that in terms of Regulation 49W(1) of the Sebi (Mutual Funds) Regulations, 1996, a mutual fund registered under Regulation 9 can be granted approval to establish SIFs. A mutual fund which has been operational for a minimum of three years and has an average asset under management (AAUM) of not less than Rs 10,000 crore in the three-year period can set up an SIF if no action has been initiated against the sponsor asset management company. Alternatively, AMCs can establish an SIF by appointing a chief investment officer (CIO) for the fund with an experience of fund management of at least 10 years.

Additionally, such a CIO also needs to have an AAUM of not less than Rs 5,000 crore. Along with the appointment of the CIO, the fund will also need to appoint an additional fund manager who has an experience of at least three years and has managed an AAUM of not less than Rs 500 crore. Fund houses which wish to establish SIFs also need to ensure that no action has been initiated or taken against the sponsor/AMC under section 11, 11B, and/or Section 24 of the SEBI Act, 1992.

Benchmarking For SIFs

SIFs need to mandatorily follow a single-tier benchmark system, benchmarking their scheme against indices such as Nifty 500 or BSE Sensex for equity strategies. For bond indices, the SIFs will need to benchmark such strategies against appropriate bond indices for debt strategies. Fund houses can also benchmark the scheme against second-tier benchmarks optionally.