Specialized Investment Fund (SIF) - Introduction of New Asset Class
Specialized Investment Fund is a new asset class designed for investors looking for advanced investment strategies. It aims to provide a higher ticket investment product to meet the needs of the emerging category of investors.
The landscape of investment management in India has significantly evolved over the years, marked by the introduction and development of various investment products. SEBI has adopted a segmented risk-based approach to regulation of these products depending on their complexity, sophistication of target investors, minimum investment size etc.
The current range of investment products with varying risk-reward profiles, are intended to meet the investment needs of retail, high net-worth and institutional investors. The regulatory framework and prudential norms governing these investment vehicles become progressively more flexible from Mutual Funds (‘MFs’) to Portfolio Management Services (‘PMS’) to Alternative Investment Funds (‘AIFs’), in sync with the investment profile and investment size of these products.
Over the years, a gap has emerged between MFs and PMS in terms of portfolio flexibility, creating an opportunity for a new investment product. To bridge this gap, the SEBI (Mutual Funds) Regulations, 1996 have been amended to introduce the broad regulatory framework for the new investment product – Specialized Investment Fund (SIF).
Eligibility Criteria for Specialized Investment Fund (SIF):
A registered mutual fund may establish SIF, provided they meet the eligibility criteria under one of the following routes:
- Route 1 - Sound Track Record:
1) Mutual Fund has been in operation for a minimum period of 3 years and has an average asset under management (‘AUM’) of not less than INR 10,000 crores, in immediately preceding 3 years.
2) No action has been initiated or taken against the sponsor/asset management company (‘AMC’) under section 11, 11B, and/or Section 24 of the SEBI Act, 1992 during the last 3 years - Route 2 - Alternate Route:
1) The AMC has appointed: a. A Chief Investment Officer (‘CIO’) for the SIF with an experience of fund management of at least 10 years and has managed an average AUM of not less than INR 5,000 crores b. An additional Fund Manager for the SIF with experience of fund management of at least 3 years and has managed an average AUM of not less than INR 500 crores.
2) No action has been initiated or taken against the sponsor/AMC under section 11, 11B, and/or Section 24 of the SEBI Act, 1992 during the last 3 years. - The AMC may share resources for operations across mutual funds and SIF. A registered Mutual Fund shall file an application for prior approval with SEBI for establishment of an SIF, in the manner as may be specified by SEBI.
Minimum Investment Threshold:
The SIF shall not accept from an investor an investment amount less than ten lakh rupees across all investment strategies in the manner as may be specified by the Board; provided that the requirement of minimum investment amount shall not apply to an *accredited investor.
In this regard:
1. The AMC shall ensure that an aggregate investment by an investor across all investment strategies offered by the SIF, at the Permanent Account Number (‘PAN’) level, is not less than INR 10 lakh (hereinafter referred to as the ‘Minimum Investment Threshold’).
2. The Minimum Investment Threshold of INR 10 lakh shall apply exclusively to investments under SIF and shall not include investments made by the investor in regular MF schemes of the same AMC.
3. The AMC may offer systematic investment options such as Systematic Investment Plan (‘SIP’), Systematic Withdrawal Plan (‘SWP’) and Systematic Transfer Plan (‘STP’) for investment strategies launched under the SIF, while ensuring compliance with the Minimum Investment Threshold.
Investment Strategy:
“Investment Strategy” means a scheme of mutual funds launched under the SIF. An investment strategy under the SIF shall be launched as an open-ended investment strategy or close-ended investment strategy or interval investment strategy with subscription and redemption frequency appropriately disclosed in the offer document.
Provided that a Specialized Investment Fund may launch such investment strategies in the manner as may be specified by the Board from time to time
The following Investment Strategies are permitted to be launched under SIF:
1) Equity Oriented Investment Strategies:
2) Debt Oriented Investment Strategies:
3) Hybrid Investment Strategies:
To avoid proliferation of investment strategies and in line with the approach followed for categorization of MF schemes, only one investment strategy shall be permitted to be launched under each of the aforementioned categories.
Subscription and redemption of units of Investment strategies:
The subscription and redemption frequency of investment strategy under SIF may be based on the nature of investments, including daily, weekly, fortnightly, monthly, quarterly, annually, fixed maturity, or other suitable intervals. The SIF may decide on the appropriate frequency of subscription/ redemption to allow the fund managers to adequately manage liquidity of the fund without imposing undue constraints on the investors.The subscription frequency and redemption frequency of an investment strategy may be distinct from each other. Illustration: An investment strategy may permit daily subscriptions, while offering weekly redemptions.
Notice Periods:
Based on the structure of the investment strategy and the liquidity risk associated with it, AMC may implement appropriate notice periods for redemption from the investment strategy of SIF, in the following manner: 1) In case of notice period, the redeeming investor shall receive the value of units sold based on the fund’s NAV at the end of the notice period. 2) Maximum duration of notice period shall not exceed 15 working days.
Listing of units of investment strategies:
1) To provide an exit option for the redeeming investors, the units of all close ended and interval investment strategies of SIF shall be mandatorily listed on recognized stock exchange(s).
2) Investment strategies with subscription and/or redemption frequency other than daily shall be classified as ‘Interval investment strategies’ for the purpose of SIF.
Benchmarking of Investment Strategies:
1) The investment strategies of SIF shall follow a single-tier benchmark structure. Provided that, AMC at its discretion may also provide a second tier benchmark for investment strategies as applicable for schemes of Mutual Funds under para 1.9 of the Master Circular
2) The AMC shall appropriately select any of broad market indices available, as a benchmark index depending on the investment objective and portfolio of the investment strategy.
3) The guiding principles for selection of benchmarks are as follows:
a) Equity oriented investment strategies shall be compared against a suitable broad market index such as BSE Sensex or NSE Nifty or BSE 100 or CIRISL 500 etc.
b) Debt oriented investment strategies shall be compared with a suitable broad market index that is a representative of the fund’s portfolio.
c) Hybrid investment strategies shall be compared with suitable broad market benchmarks wherever available.
Distribution of Specialized Investment Funds:
1) An entity engaged in sale and/or distribution of Mutual Fund products, shall also be eligible to offer products under the SIF, subject to such entity having passed National Institute of Securities Markets (‘NISM’) Series-XIII: Common Derivatives Certification Examination.
2) AMFI and the AMCs shall ensure compliance with the above requirement by their agents and distributors.
Disclosure in offer documents:
The offer documents of the SIF shall contain disclosures which are adequate for investors to make informed investment decisions, highlighting the high-risk nature of the product, in the manner as may be specified by the SEBI.
Risk Band:
Similar to Mutual Fund schemes, the potential risk associated with the investment strategies of the SIF shall be depicted through a pictorial risk meter, termed as “Risk-band”. The Risk-band shall have the following five levels of risks for investment strategies of SIF:
1. Risk band level 1 (Lowest risk)
2. Risk band level
3. Risk band level
4. Risk band level
5. Risk band level 5 (Highest Risk)
Based on the scheme characteristics, SIF shall assign risk level for schemes at the time of launch of New Fund Offer of the investment strategy.
Any change in risk band shall be communicated by way of Notice cum Addendum and by way of an e-mail or SMS to unitholders of that particular investment strategy.
Risk-band shall be evaluated on a monthly basis and SIF/AMCs shall disclose the risk-band for all their investment strategies on their respective websites and on the website of AMFI within 10 days from the close of each month.
SIFs shall disclose the risk level of investment strategies as on March 31st of every year, along with the number of times the risk level has changed over the year, on their websites and AMFI website.
Source:
The Gazette of India, Published Dec 16 2024, Consultation Paper on New Asset Class
and Regulatory Framework for Specialized Investment Funds (SIFs)
Mutual Fund investments are subject to market risks, read all scheme related documents carefully
Please note that this article or document has been prepared on the basis of internal data/ publicly available information and other sources believed to be reliable. The information contained in this article or document is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party in any manner. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article or document.
Published on Mar 20 2025
