The Money Question: Don't Ask, Should I Buy An SIF? Edelweiss Mutual Fund's Radhika Gupta Suggests This Strategy

As investment choices expand, how should investors decide which products belong in their portfolios? At Outlook Money’s The Money Questions: Where Should You Invest Now, Nidhi Sinha, Editor, Outlook Money, spoke with Radhika Gupta, Managing Director and CEO of Edelweiss Mutual Fund, about specialised investment funds (SIFs), global investing through GIFT City, and the need to match products with financial goals.

Here are edited excerpts from their conversation and the audience interaction.

Nidhi Sinha: Investors are seeing new products such as SIFs and GIFT City funds. Is this expansion giving them useful choices?

Radhika Gupta: I think it is inevitable. As India’s capital markets develop, the range of investment products will expand. There was a time when the mutual fund industry largely offered large-cap equity funds and income funds. Since then, we have seen passive funds, exposure to commodities, and products such as Real Estate Investment Trusts (REITs) and  Infrastructure Investment Trusts (InvITs).

The question is whether a product solves a problem for investors. If it does, there will be demand for it. I believe SIFs and GIFT City products address needs that already exist.

Nidhi Sinha: The minimum investment for an SIF is high for an average retail investor. Are these products meant for a niche group?

Radhika Gupta: They sit somewhere between mutual funds and alternative investment funds (AIFs). A person can begin investing in a mutual fund with a small amount, while an AIF has a minimum investment of Rs 1 crore. For an SIF, the Rs 10 lakh minimum applies across schemes offered by the same SIF manager.

These products are meant for investors who have some experience and can understand more nuanced strategies. They are neither products for everyone nor restricted to an extremely small group.

Nidhi Sinha: Has the growth of equity investing made this the right time for SIFs?

Radhika Gupta: The SIF platform is new, but many of the underlying strategies are not. Derivative-based and long-short strategies existed in India through other investment structures. SIFs provide another platform for them.

Investors’ questions have also changed. Earlier, the focus was often on participating in the equity market. Now, people are asking what risk they must take to earn a particular return. Would they accept a slightly lower return if it came with much less volatility? I think portfolios will be built with greater precision over the next five to 10 years, and SIFs can play a role in that.

Nidhi Sinha: What has driven interest in Edelweiss Mutual Fund’s SIF brand, Altiva?

Radhika Gupta: We built it around a need we saw among investors: they wanted income and relatively stable returns, along with tax efficiency. Our first scheme, Altiva Hybrid Long Short, was designed with that need in mind.

Interest grew as investors observed how the fund behaved during a market decline. We have seen participation from individual investors, trusts, and investors across cities. That tells us the interest is broader than large family offices or corporate investors.

Nidhi Sinha: What can an SIF do that an ordinary mutual fund cannot?

Radhika Gupta: One important difference is greater flexibility in using derivatives. Mutual funds already use derivatives for purposes such as hedging and arbitrage. An SIF can also use them to express a negative view on a stock or sector. In a conventional mutual fund, if a fund manager has a negative view, the usual option is simply not to hold that stock.

SIFs also allow greater flexibility for certain income strategies and in areas such as credit exposure. Depending on the scheme, they may have restrictions on redemptions. That gives fund managers room to run strategies that would be difficult in a product offering daily liquidity.

Nidhi Sinha: Who should consider investing in an SIF?

Radhika Gupta: I would start with the investor’s need, rather than the question, “Should I buy an SIF?” Someone seeking income may look at a hybrid long-short strategy. Someone seeking a concentrated portfolio of mid- and small-cap stocks may have a different need. Another investor may want exposure to large-cap stocks alongside a strategy designed to generate additional income.

These are different products. An investor should first understand what they want the money to do, then see whether a particular SIF fits that purpose.

Global Investing Through GIFT City

Nidhi Sinha: Turning to GIFT City, what does an investor gain from a fund there that they would not get from an international mutual fund?

Radhika Gupta: In terms of investment exposure, there may not be much difference. The practical issue is that many international mutual funds offered in India have faced restrictions on fresh investments because the industry’s overseas investment limits have been reached.

We saw continuing demand for global exposure. Through GIFT City, we have made versions of international investment options available to investors. The challenge now is to build an ecosystem that makes investing in them as easy as investing in a domestic mutual fund.

Nidhi Sinha: What difficulties do investors currently face?

Radhika Gupta: People are used to the convenience of domestic mutual funds, including systematic investment plans (SIPs). Some of that infrastructure still needs to be built for GIFT City products. The process of moving money and investing should become simpler with time.

For our GIFT City funds, the current minimum investment is $5,000. Fund transfer costs are one reason for that threshold. As the system improves, we would like to bring the amount down.

Nidhi Sinha: How should an investor approach global markets such as the US and China?

Radhika Gupta: One mistake is to treat global investing as a short-term call on whichever market looks attractive at the moment. I prefer to think of it as a continuing part of asset allocation.

Personally, I target an international allocation of about eight to15 per cent. An investor could begin with broad US exposure or a US technology fund, depending on what they want. They could then consider another large market, such as China, or an emerging-markets fund. The allocation should fit the overall portfolio.

Nidhi Sinha: Investors can also buy overseas stocks or exchange-traded funds directly. Why choose a GIFT City fund?

Radhika Gupta: Investors have different preferences. Some are comfortable buying stocks or ETFs themselves; others prefer a managed fund. Choosing individual stocks overseas can be difficult because the investment universe is so wide.

Our role is to offer another choice. Investors can compare it with direct investing and decide which approach suits them.

How Should Investors Choose?

Nidhi Sinha: With access to more products and strategies, is deciding what to leave out becoming a bigger challenge?

Radhika Gupta: Choice will continue to grow. I think of a traditional thali: there are several dishes, but you choose how much of each belongs on your plate. Investors have to build a portfolio that fits their own lives.

They will also need better ways to compare products. Two funds within the same SIF category may follow very different strategies. Simply sorting them by returns may tell you very little about how they work or what risks they take.

Nidhi Sinha: What is one misconception about SIFs that you would like to correct?

Radhika Gupta: That every SIF is extremely high risk. People hear “derivatives” and assume all the products are designed to take aggressive bets. You have to look at the strategy and the risk it is trying to manage.

Nidhi Sinha: And why should investors pay attention to GIFT City?

Radhika Gupta: Because global investing can be a useful part of a portfolio, and GIFT City is becoming another way to access it.

FAQs

1. What is the minimum investment in an SIF?
The minimum is Rs 10 lakh across schemes offered by the same SIF manager.

2. How should investors choose an SIF?
Start with the financial need it should meet, then examine the scheme’s strategy, risks, and redemption terms. Funds in the same category can work differently.

3. Why consider a GIFT City fund for global investing?
It offers another route to overseas markets when some international mutual funds in India restrict fresh investments. Investors should compare its costs and process with other options.