Are SIFs too complex for first-time investors versus mutual funds?

With India’s financial markets expanding, newer investment frameworks are becoming available to investors. One such structure is the specialised investment fund (SIF), introduced by SEBI. While mutual funds continue to remain widely accessed, SIFs have started drawing interest among investors who are exploring broader market-linked opportunities.

This raises an important question: are SIFs relatively complex for those investing for the first time? This article examines that question in detail.

Table of contents

• Introduction: Rise of specialised investment funds (SIFs) in India
• Should first-time investors consider SIFs?
• Expert opinions on the suitability of SIFs for retail investors
• Investment strategies under SIFs

Introduction: Rise of specialised investment funds (SIFs) in India

Within the growing investment environment in India, SIFs represent a new structure that follows SEBI’s guidelines and offers distinct strategy-based categories.

SEBI has created three asset class categories for SIFs: equity oriented, debt oriented and hybrid. Compared with mutual funds, which operate with well-defined categories, lower minimum investment amounts and detailed retail disclosures, SIFs involve more flexibility in mandate design, wider strategy choices and a higher minimum investment requirement (Rs. 10 lakh). These features make SIF participation more aligned with investors who have experience dealing with market fluctuations and relatively complex financial instruments.

As SIFs gain attention, they highlight the broader evolution of India’s investment landscape. At the same time, their structure and strategies may introduce complexity for individuals who prefer products with simpler disclosures and lower minimum entry points.

Also Read: What Are Thematic Funds - Meaning, Benefits and factors

Should first-time investors consider SIFs?

SIFs currently require a minimum investment of ₹10 lakh, which may limit access for a wider retail audience. The strategies used by SIFs may involve derivatives, long-short positions and concentrated exposures, which require a clear understanding of how such instruments work and a relatively higher risk appetite.

Since SIFs are a new category without an extended performance history, investors who prefer regulated, category-based products with lower minimums may find diversified equity mutual funds and systematic investment plans more accessible. These offer broader diversification features and longer historical data.

Expert opinions on the suitability of SIFs for retail investors

Market discussions indicate that mutual funds remain a commonly used starting point for individuals beginning their investment journey because of their regulated framework, publicly available data and defined categories. SIFs, in comparison, may be more suitable for experienced investors who understand the characteristics of long-short strategies and already have exposure across equity and debt instruments.

SIFs generally operate with a medium to long investment approach depending on their mandate. They do not involve intraday trading, but understanding their strategy at the outset and reviewing fund-level information periodically may be important because of the nature of positions taken by the fund.

Investment strategies under SIFs

SIFs provide options across equity, debt and hybrid strategies. Equity-oriented SIFs include:

• Equity long-short fund, which allocates at least 80% to equity and may take up to 25% short exposure within SEBI’s permitted limits
• Equity ex-top 100 long-short fund, which invests at least 65% in equities outside the top 100 companies and may take up to 25% short exposure
• Sector rotation long-short fund, which allocates at least 80% to four selected sectors and may take short exposure within the permitted limit
• Debt SIFs include debt long-short funds and sectoral debt long-short funds. Hybrid long-short funds combine equity and debt exposures based on each scheme’s design.

Because these strategies rely on derivatives, short exposure, sector concentration and active positioning, they may involve relatively higher complexity and relatively higher volatility. Some market views highlight that mutual funds offer a longer publicly available performance history and detailed retail disclosures, which may help investors evaluate them more easily. However, all market-linked investments are subject to market risks, and investors should read all scheme related documents carefully since past performance may or may not be sustained.

SIF liquidity varies based on the individual scheme structure. Open-ended mutual funds typically allow daily purchases and redemptions at applicable NAV, except categories with lock-ins or defined maturities. Certain SIFs may allow daily or periodic redemptions, while others may have restrictions or limited redemption windows. More frequent redemption structures may involve exit loads or relevant tax implications.

In terms of investment horizon, equity mutual funds are generally considered with a multi-year approach, and many SIF strategies also require time for their tactical or derivative-based positions to play out. Investors reviewing SIFs may need to understand the strategy disclosures, risk factors and fund manager approach before participating.

Overall, SIFs are structured for investors who can evaluate relatively complex strategies, review product disclosures periodically and consider a longer investment horizon. For those with lower risk appetite or those beginning their investment journey, mutual funds may offer more accessible structures with lower minimum investments and detailed category definitions.

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FAQ

Are SIFs suitable for first-time investors?

SIFs may involve long-short positions, sector-based allocations and derivative exposure, which may lead to relatively higher complexity. Investors who prefer simpler disclosures, lower minimum investment requirements and higher liquidity may find mutual funds more accessible.

What are the investment strategies used by SIFs?

• Equity long-short fund
• Equity ex-top 100 long-short fund
• Sector rotation long-short fund
• Debt long-short funds
• Hybrid long-short funds

How does liquidity compare between SIFs and mutual funds?

Open-ended mutual funds typically offer daily liquidity based on applicable NAV. Liquidity features in SIFs depend on the scheme structure and may vary from daily to periodic redemption windows.

What is the investment horizon for SIFs?

The investment horizon depends on the SIF category and its underlying strategy. Long-short and tactical approaches may require a multi-year perspective, while mutual funds disclose their recommended horizons under SEBI’s category guidelines. SIFs may differ based on how their strategies are designed.