Sebi Issues Clarifications Regarding Regulatory Framework Of SIFs – Here’s What They Are

The Securities and Exchange Board of India (Sebi) on Wednesday, April 9 issued a clarification on the regulatory framework for Specialized Investment Funds (SIFs). The regulator received feedback from industry participants and the Association of Mutual Funds in India (AMFI), and based on that clarified two key points regarding the regulatory framework of SIFs.

Before we get into the clarifications, let's understand what SIFs are.

What are SIFs?

Sebi introduced the idea of SIFs in a consultation paper in July 2024. SIF is a new category of investment product that sits at the intersection of mutual funds and portfolio management services (PMS). While mutual funds are more regulated and suitable for the general public, PMS is more flexible but caters to high-net-worth individuals. Sebi believes there’s a gap between mutual funds and PMS, and SIFs are meant to fill that gap. In February this year, Sebi finalised a regulatory framework for SIFs.

Here’s What Makes SIFs Different:

SIFs will be set up like mutual funds, with similar processes for investing and withdrawing money. They will also follow the same tax rules for both investors and the fund companies managing the money. However, it will differ from mutual funds and PMS in the following ways:

• Investors will need to invest a minimum of Rs 10 lakh to get started

• SIFs could have exposure to a wide variety of asset classes, including equity, debt, real estate investment trusts (REITs) or derivatives like futures and options (F&O)

• Depending on the strategy chosen by the fund manager, SIFs may offer higher risk—but also the potential for higher returns—compared to regular equity mutual funds

Sebi’s Clarifications – Here’s What Changes

Sebi has clarified that the rule on the maturity of securities in interval schemes, as mentioned in the Mutual Fund Master Circular dated June 27, 2024, will not apply to Interval Investment Strategies under Specialized Investment Funds (SIFs). This gives SIFs more flexibility in how they manage such strategies.

The regulator also clarified that the minimum investment required for SIFs is set at Rs 10 lakh per investor, based on their permanent account number (PAN), across all strategies offered under SIFs. However, this rule will not apply to mandatory investments made by asset management companies (AMCs) for their designated employees, as per the existing mutual fund regulations.