Specialized Investment Fund (SIF) - New Asset Class
[1] On July 16 2024, SEBI in the consultation paper proposed the introduction of a new asset class/product category (referred to as ‘New Asset Class’) aimed at bridging the gap between Mutual Funds and Portfolio Management Services (hereinafter referred to as ‘PMS’) in terms of flexibility in portfolio construction. The proposed New Asset Class aims to provide investors with a regulated investment product featuring higher risk - taking capabilities and a higher ticket size to meet the needs of the emerging category of investors.
Under the proposed New Asset Class, the AMC can offer ‘Investment Strategies’under pooled fund structure, akin to Mutual Funds schemes. (The term "Investment Strategy” means a scheme of mutual fund launched under the Specialized Investment Fund). The SIF will accept investments of Rs 10 lakh or more from the investors across investment strategies (in the SEBI prescribed manner). However, the requirement of minimum investment will not be applicable for accredited investors.
Accredited Investors:
“Accredited investor” means any person who is granted a certificate of accreditation by an accreditation agency who,
(i) in case of an individual, Hindu Undivided Family, family trust or sole proprietorship has:
(A) annual income of at least two crore rupees; or
(B) net worth of at least seven crore fifty lakh rupees, out of which not less than three crores seventy-five lakh rupees is in the form of financial assets; or
(C) annual income of at least one crore rupees and minimum net worth of five crore rupees, out of which not less than two crore fifty lakh rupees is in the form of financial assets.
(ii) in case of a body corporate, has net worth of at least fifty crore rupees;
(iii) in case of a trust other than family trust, has net worth of at least fifty crore rupees;
(iv) in case of a partnership firm set up under the Indian Partnership Act, 1932, each partner independently meets the eligibility criteria for accreditation:Provided that the Central Government and the State Governments, developmental agencies set up under the aegis of the Central Government or the State Governments, funds set up by the Central Government or the State Governments, qualified institutional buyers as defined under the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, Category I foreign portfolio investors, sovereign wealth funds and multilateral agencies and any other entity as may be specified by the SEBI from time to time, shall deemed to be an accredited investor and may not be required to obtain a certificate of accreditation;]
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.
As per the consultation paper of SEBI, only the investment strategies that are specified by SEBI from time to time, can be launched. Some of the examples of Investment strategies that may be permitted are illustrated below:
1) Long-short Equity Fund[1]:
A fund that seeks to deliver returns by taking long and short positions in equity and equity- related instruments. For e.g. the fund may be bullish on automobile sector and bearish on IT sector, and may invest in both these sectors by going long on the automobile sector and short on the IT sector.
2) Inverse ETF/Fund:
A fund that seeks to generate returns that are negatively correlated to the returns of the underlying index.
Other key/important points on the SIF
Restrictions on Investments:
1) No investment strategy of a SIF shall invest more than 10 per cent of its NAV in the equity shares and equity-related instruments of any company
2) A Specialized Investment Fund may invest in the units of REITs and InvITs subject to the following:
(a) No Specialized Investment Fund under all its investment strategies shall own more than 20 per cent of units issued by a single issuer of REIT and InvIT: Provided that the limit mentioned in clause (a) of sub-regulation 4 above shall be inclusive of 10 per cent limit for mutual fund scheme as specified under clause 13 (a) of Seventh Schedule. (b) An investment strategy under Specialized Investment Fund shall not invest - (i) more than 20 per cent of its NAV in the units of REITs and InvITs; and (ii) more than 10 per cent of its NAV in the units of REIT and InvIT issued by a single issuer: Provided that the limits mentioned in sub-clauses (i) and (ii) above shall not be applicable for investments in case of index fund or sector or industry specific scheme pertaining to REIT and InvIT.
3) All other investment restrictions applicable for schemes of mutual funds as specified under Seventh Schedule shall apply to investment strategies under the SIF.
Duties of AMC:
4) The Asset Management Company (AMC) shall ensure that the SIF has distinct identification, separate from that of the Mutual Fund, to maintain clear differentiation between the offerings of the SIF and that of a Mutual Fund.
5) The AMC shall comply with the provisions relating to branding, advertising, standard disclaimers, guidelines on usage of sponsor or AMC or mutual fund’s brand name and maintenance of a separate website, as may be specified by the SEBI from time to time.
Disclosure in the offer documents:
6) 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.
Duties of Trustees:
7) The trustees shall ensure that all activities of the Specialized Investment Fund are in accordance with the provisions of regulations.
Source: The Gazette of India, Published Dec 16 2024 and [1]Consultation Paper on New Asset Class
Mutual Fund investments are subject to market risks, read all scheme related documents carefully
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Published on Dec 31 2024
