The market regulator Securities and Exchange Board of India (SEBI) has notified a new asset class called ‘Specialised Investment Fund’. Earlier in July SEBI proposed the introduction of this new asset class. The new investment class is aimed at providing investors with an intermediate option between mutual funds (MFs) and Portfolio Management Services (PMS). Investments of Rs 10 lakh and above can be made in the new asset class across all investment strategies. SIFs are aimed at offering an investment option which is more advanced than a regular mutual fund but is more affordable than PMS.
What Can SIFs Invest In?
SIF schemes can deploy both open-ended and close-ended investment strategies or interval investment strategies. The investment strategies can include exposure to equities, debt instruments, Real Estate Investment Trusts (REITs) and derivatives such as Futures and Options (F&O).
However, the markets regulator has said that no more than 20% of a SIF's Net Asset Value (NAV) can be invested in debt instruments issued by a single issuer which are not investment grade. The SEBI added that government securities, treasury bills, and tri-party repos involving such instruments are exempt from the restriction.
While SIFs can invest in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) the SEBI has said that SIFs cannot own more than 20% of the units issued by a single issuer of REITs and InvITs.
How Are SIFs Similar To Mutual Funds?
The markets regulator has proposed that SIFs will be structured like mutual funds offering similar investment and redemption procedures. Additionally, the taxation for SIFs for both the end investor and the asset management company is also similar to that of mutual funds.
The fees and expenses for the investment strategies under SIF come under Regulation 52 of SEBI’s mutual fund regulations.
How are SIFs Different From Other Investment Classes?
Viral Bhatt the founder of financial services marketplace, Money Mantra told Outlook Money that SIFs differ from standard mutual funds and Exchange Traded Funds as the risk-return profile of SIFs can be customised to provide a specific risk-return profile.
“Unlike traditional funds that typically invest in a broad portfolio of assets, SIFs are structured to meet specific investment goals. They often combine multiple asset classes or strategies (equities, debt, derivatives) into a single product. This can be customized to provide a specific risk-return profile, which might not be available in standard mutual funds or ETFs,” Bhatt said.
Why Was The New Asset Class Introduced?
Bhatt said that the new asset class has been introduced to cater to investors who are looking for alternatives which offer higher potential returns with risk management features.
“In a world of low-interest rates and unpredictable market conditions, investors are increasingly looking for alternatives that provide better returns than traditional savings accounts or fixed deposits. SIFs, with their customized risk-return profiles, offer higher potential returns with risk management features, making them an attractive choice,” Bhatt told Outlook Money.
Bhatt added that since SIFs diversify investments across asset classes within a single scheme or fund they offer investors the ability to hedge risks in uncertain market conditions.
“SIFs provide a way to diversify across asset classes, geographies, and strategies, all within a single fund. They can combine equities, bonds, commodities, and derivatives to mitigate risks and enhance returns. The ability to hedge risk within a structured framework makes them attractive in uncertain market conditions,” Bhatt said.
Who should invest in SIFs?
Bhatt said that SIFs can appeal to investors who are interested in investing in commodities, real estate, or derivatives with a structured approach.
“With traditional investment vehicles like stocks and bonds becoming more volatile, SIFs provide an opportunity for those looking to explore alternative investments. They might be appealing to investors interested in commodities, real estate, or derivatives but who prefer a structured approach,” Bhatt said.
Bhatt added that while SIFs offer tailored risk-return profiles they are most suitable for high-net-worth individuals, institutional investors, and sophisticated retail investors seeking personalised investment solutions.
“...Due to their complexity, SIFs are best suited for high-net-worth individuals, institutional investors, and sophisticated retail investors who understand the intricacies of these products and are looking for more personalised investment solutions,” Bhatt said.
