[Analysis] SEBI’s Specialised Investment Funds (SIFs) | The Perfect Blend of Mutual Funds and PMS

SEBI’s Specialized Investment Funds (SIFs) blend the advantages of mutual funds and Portfolio Management Services (PMS), offering professionally managed and strategically diversified investments without requiring ultra-high-net-worth status.

SIFs are a specialised category of mutual funds, complying with all mutual fund regulations while meeting additional conditions specific to their investment strategies. They are ideal for investors seeking enhanced flexibility and diverse opportunities without the high entry barriers of PMS.

To maintain clear differentiation, the asset management company must provide SIFs with a distinct identity, separate from traditional mutual funds, ensuring a clear distinction between the offerings of Specialized Investment Funds and mutual funds. Also, the Fund Manager of SIFs must hold the relevant NISM certification.

Let’s understand this through an example: Arjun, a 35-year-old software engineer, has a mutual fund portfolio but seeks more advanced strategies to grow his wealth. While Portfolio Management Services (PMS) offer tailored options, their high entry point of Rs 50 lakh makes them inaccessible. SEBI’s Specialized Investment Funds (SIFs) emerge as the perfect middle ground with a manageable Rs 10 lakh minimum investment.

Unlike regular mutual funds, SIFs provide access to diverse assets like real estate, gold, and infrastructure, along with professionally managed strategies. For Arjun, SIFs strike the ideal balance—offering sophisticated options and broader diversification without requiring ultra-high-net-worth status. This makes SIFs a smart choice for investors looking to improve their financial game.

The ‘Investment Strategy’ is a scheme of mutual funds launched under the Specialised Investment Fund.

Investment strategies under the Specialized Investment Fund must adhere to the procedure outlined for mutual fund schemes. Investment strategies can be structured as open-ended, close-ended, and interval strategies. Further, the offer document must disclose the subscription and redemption frequency. Fees and expenses for these strategies shall comply with Mutual Fund Regulations.

Specialised Investment Fund may invest monies collected under any of its investment strategies in the following instruments:

• Securities;
• Money market instruments;
• Privately placed debentures;
• Securitised debt instruments, which are either asset-backed or mortgage-backed securities;
• Gold or gold-related instruments
• Silver or silver-related instruments;
• real estate assets
• Infrastructure-debt instrument and assets.

To ensure prudent and diversified investments, Specialized Investment Funds must adhere to the following restrictions:

• Limits on Debt Instruments
• Ownership limits in companies
• Equity Investments
• Investments in REITs and InvITs
• Other Restrictions

7.1 Limits on Debt Instruments

• Investment strategies cannot invest more than 20% of NAV in debt instruments (money and non-money markets) issued by a single issuer rated at least investment grade.
• The limit may be extended to 25% of NAV with prior approval from the Board of Trustees and Directors of the AMC.

Exceptions: Government securities, treasury bills, triparty repo on government securities or treasury bills, and certain debt ETFs or funds specified by the Board are exempt from these limits.

• Investments within the limit can include mortgage-backed securitised debt-rated investment grade or higher.

7.2 Ownership Limits in Companies

• Specialised Investment Funds, under all strategies, cannot own more than 15% of a company’s paid-up capital with voting rights.
• Regulation 7B(1)(a) governs investments in AMC or trustee companies.
• If mutual funds under all schemes own 10% of a company’s paid-up capital, the Specialized Investment Fund under all strategies can own a maximum of 5%.

7.3 Equity Investments

No investment strategy can allocate more than 10% of its NAV to a single company’s equity shares and equity-related instruments.

7.4 Investments in REITs and InvITs

• Combined strategies cannot own more than 20% of units issued by a single REIT or InvIT issuer.
• Individual strategies cannot invest more than 20% of NAV in REITs and InvITs and 10% of NAV in units issued by a single REIT or InvIT issuer.

Exemptions: Index funds or sector/industry-specific schemes for REITs and InvITs are excluded from these limits.

7.5 Other Restrictions

All investment restrictions applicable to mutual fund schemes under the Seventh Schedule apply to Specialized Investment Fund strategies.