SEBI’s SIF Framework: What Investors Need to Know

In a significant move to reshape India’s investment landscape, the Securities and Exchange Board of India (SEBI) has introduced a new class of investment products: Specialized Investment Funds, or SIFs. Effective from April 1, 2025, the SIF framework is designed to bridge the gap between traditional mutual funds and more sophisticated investment vehicles like Portfolio Management Services (PMS) and Alternative Investment Funds (AIFs). SIFs offer a unique proposition, combining the regulatory oversight and tax efficiency of mutual funds with the advanced, flexible strategies of alternative investments. For investors, particularly the mass affluent and high-net-worth individuals (HNIs), understanding the nuances of this new framework is crucial.

The Genesis of SIFs: A Middle Ground

For years, the Indian market offered a binary choice for investors: mutual funds, with their accessibility and strict regulations, and PMS/AIFs, which provided tailored, high-conviction strategies but came with a hefty minimum investment of ₹50 lakh and a different tax structure. This created a void for a growing segment of investors who desired more than a conventional mutual fund but didn’t meet the high investment threshold of PMS. SEBI’s SIF framework addresses this precise need.

SIFs operate under the SEBI (Mutual Funds) Regulations, 1996, but with a separate set of rules that allow for greater flexibility in portfolio construction. The minimum investment for an SIF is set at ₹10 lakh, making it more accessible to a wider pool of sophisticated investors. This structure also ensures that SIFs can leverage the same tax benefits as mutual funds, with no tax incurred by the investor until the units are sold. This is a significant advantage over PMS, where every security transaction can trigger a tax event.

Key Features and Investment Strategies

The core differentiator of SIFs lies in their ability to employ advanced investment strategies that are typically not permitted in regular mutual funds. These include both “long” and “short” positions.

• Long-Short Funds: A key feature of SIFs is the ability to take unhedged short exposure through derivatives, capped at 25% of the portfolio. This allows fund managers to not only benefit from a rising market by taking long positions but also generate returns or mitigate risk during a falling market by shorting stocks they expect to decline. This dual-pronged approach can potentially lead to lower volatility and more consistent returns across various market cycles.
• Concentrated Portfolios: Unlike traditional mutual funds, which have diversification limits, SIFs can run more concentrated portfolios. They are allowed to invest a higher percentage of their assets in a single security or sector, enabling them to capitalize on niche themes and special situations such as mergers, acquisitions, and IPOs.
• Flexible Liquidity: The liquidity of SIFs is tailored to their specific investment strategy. Unlike open-ended mutual funds that offer daily redemptions, SIFs may have varying redemption frequencies—from daily to weekly, monthly, or even fixed maturity periods. This allows fund managers to better manage the fund’s liquidity, especially when investing in less liquid assets.

Who Can Launch SIFs?

To ensure professional management and investor protection, SEBI has laid down stringent eligibility criteria for fund houses. An Asset Management Company (AMC) can launch an SIF through one of two routes:

1. Track Record Route: The AMC must have been in operation for a minimum of three years and have an average AUM of at least ₹10,000 crore over the last three years.
2. Alternate Route: The AMC must appoint a Chief Investment Officer (CIO) for the SIF with at least 10 years of fund management experience, having managed an average AUM of ₹5,000 crore, along with an additional fund manager with three years of experience and a minimum AUM of ₹500 crore.

Fund Houses and the SIF Rollout

Since the framework’s introduction, several fund houses have shown a keen interest in the SIF space, with some already taking the lead. Quant Mutual Fund has emerged as a pioneer, announcing the launch of India’s first SIF—the QSIF Equity Long-Short Fund. This open-ended equity strategy focuses on long-term capital appreciation by blending traditional equity investments with tactical short exposures through derivatives.

Following closely, Edelweiss Mutual Fund has introduced its Altiva Hybrid Long-Short Fund, marking the first-ever hybrid long-short SIF in the country. This fund aims to provide steady, income-oriented returns by combining equity arbitrage, high-quality fixed income, and strategic bets on derivatives and special situations.

Other fund houses, like Mirae Asset Investment Managers, have also secured approval from SEBI and are actively working on their SIF platforms. Mirae Asset has branded its SIF offerings as “Platinum SIF,” indicating a strategic evolution to cater to the needs of discerning investors.

Bandhan AMC also forays into SIFs with SEBI and launches ‘Arudha SIF‘ – the rollout of products under Arudha SIF will be gradual, with offerings designed to cater to investors seeking the next step in their financial journey.

A Word of Caution for Investors:

While SIFs offer exciting opportunities, they are not a one-size-fits-all solution. They are primarily designed for investors with a strong understanding of financial markets, a high-risk tolerance, and a long-term investment horizon. The use of derivatives and concentrated portfolios inherently carries a higher risk than diversified, long-only mutual funds. Therefore, investors need to conduct thorough due diligence and understand the specific strategy, risk profile, and liquidity terms of each SIF before investing. The introduction of SIFs represents a maturing of the Indian financial market, providing a sophisticated new avenue for wealth creation. Also, to understand more about this, consult financial advisors and reach out to us at Moneyfront for any queries.