Specialised Investment Funds (SIFs): Tailored Investing Beyond Mutual Funds

For a long time, investors have broadly had two choices. On one side were traditional mutual funds, which are a simple, diversified, regulated, and accessible investment option. On the other hand, Portfolio Management Services (PMS) and Alternative Investment Fund (AIFs) are more flexible, more aggressive, but also more complex and expensive. What came in between was always a grey area. That gap is now being filled by a new category: Specialised Investment Funds, or SIFs.

What are SIFs?

SIFs are a new class of mutual funds created for advanced investment strategies. They are designed for investors who want more than plain-vanilla, mutual fund portfolios but are not ready to move fully into PMS or AIF structures. In many ways, they borrow hedge-fund-like capabilities while staying within the mutual fund framework and taxation system.

SIFs vs Mutual Funds

What sets SIFs apart is the way they invest. Unlike regular mutual funds, which mostly follow a long-only approach, SIFs can use more advanced strategies, like long-short positions and derivatives. Long-only simply means buying stocks or bonds with the hope that their value goes up over time, a classic way to build wealth over the long term.

SEBI regulations allow these funds (SIFs) to take unhedged short exposure of up to 25 per cent of net assets using listed derivatives. This gives fund managers more flexibility in how they manage risk and seek returns.

Despite this added flexibility, SIFs continue to follow the mutual fund model when it comes to costs. There are no performance fees. Expenses are charged through a regular expense ratio, similar to traditional mutual funds, and unlike PMS or AIFs, where performance-linked fees are common. In fact, mutual fund houses are permitted to offer SIP (Systematic Investment Plan), SWP (Systematic Withdrawal Plan), and STP (Systematic Transfer Plan) under SIFs as well.

Entry Barrier in SIFs

One of the most important aspects of SIFs is the entry barrier. The minimum investment is Rs 10 lakh at a PAN level. This is not a per-scheme limit but applies across all SIF schemes run by an asset management company. The idea is clear that SIFs are not meant for everyone. The higher minimum ticket is intended to ensure that only sophisticated investors, who understand complexity and risk, invest in them.

In terms of positioning, SIFs sit squarely between retail mutual funds and PMS/AIFs. Compared to mutual funds, they involve higher risk, greater complexity, and advanced strategies. Compared to PMS and AIFs, they come with lower minimum investments, mutual fund-style taxation, and a more familiar regulatory structure.

SIFs: Types of Investment Strategies

SEBI has approved a defined set of long–short strategies under Specialised Investment Funds, grouped into equity-oriented, debt-oriented, and hybrid strategies. Their details are as below:

Equity-Oriented Investment Strategies

1. Equity Long Short Fund

Minimum 80 per cent allocation to equities and equity-related instruments

Short exposure up to 25 per cent through unhedged equity derivatives

Structured as an open-ended or interval fund

Daily redemption or as specified by the AMC

Focuses on capturing gains from both rising and falling equity prices

2. Equity Ex-Top 100 Long Short Fund

• Minimum 65 per cent allocation to stocks outside the top 100 by market cap

• Short exposure up to 25 per cent in mid- and small-cap equities through derivatives

• Structured as an open-ended or interval fund

• Daily redemption, or as decided by the AMC

• Aims to exploit pricing inefficiencies beyond large-cap stocks

3. Sector Rotation Long Short Fund

• Minimum 80 per cent allocation across a maximum of four sectors

• Short exposure up to 25 per cent at the sector level via equity derivatives

• Structured as an open-ended or interval fund

• Daily redemption, or as decided by the AMC

• Focuses on tactical sector allocation using long and short views

Debt-Oriented Investment Strategies

1. Debt Long Short Fund

• Core allocation to fixed-income instruments across durations

• Short exposure permitted via exchange-traded debt derivatives

• Structured as an interval fund

• Weekly redemption or as specified by the AMC

• Focuses on interest-rate and duration-based positioning

2. Sectoral Debt Long Short Fund

• Investment across at least two debt sectors, with not more than 75 per cent in one sector

• Short exposure up to 25 per cent through unhedged derivatives within a sector

• Structured as an interval fund

• Weekly redemption or as specified by the AMC

• Targets relative value opportunities across debt sectors

Hybrid Investment Strategies

1. Active Asset Allocator Long Short Fund

• Invests across equity, debt, derivatives, REITs/InvITs, and commodity derivatives

• Short exposure capped at 25 per cent in equity and debt via derivatives

• Structured as an interval fund

• Redemption twice a week or more frequently, at AMC’s discretion

• Focuses on dynamic asset allocation across market conditions

2. Hybrid Long Short Fund

• Minimum 25 per cent allocation to equity

• Minimum 25 per cent allocation to debt

• Short exposure up to 25 per cent across equity and debt via derivatives

• Structured as an interval fund

• Redemption twice a week or more frequently

• Designed for balanced exposure with tactical short positioning

In short, the market regulator launched SIFs to offer a structured, regulated option for sophisticated investors seeking strategies beyond traditional mutual funds while remaining more accessible than PMS or AIFs.