Sif vs Mutual Funds vs Pms vs Aifs: What You Need To Know

If you follow market developments, you may have noticed a new term of late: SIF. The SIF full form is Specialised Investment Fund, a structure introduced by SEBI within the mutual fund regulations. It is designed for investors who seek products with higher minimum investment and relatively advanced strategies, positioned between traditional mutual funds and more complex offerings such as portfolio management services (PMS) and alternative investment funds (AIFs). This raises a simple question: where does an SIF investment fit when mutual funds, PMS and AIFs already exist?

This article explains what a SIF is, how a specialised investment fund compares with existing investment structures, and how it may align with the objectives of investors with varying levels of experience and risk appetite.

Table of contents

• What is a Specialised Investment Fund (SIF)?
• What is mutual fund (MFs)
• What is portfolio management services (PMS)
• What are alternative investment funds (AIFs)
• Where do SIFs fit in?
• Structure and regulatory oversight
• Liquidity and tenure
• Investment flexibility and strategic depth

What is a Specialised Investment Fund (SIF)?

In simple terms, a specialised investment fund is launched and managed by an asset management company (AMC) that already operates a registered mutual fund. Only AMCs that meet SEBI’s eligibility criteria may launch SIF schemes.

One route requires the mutual fund to have operated for at least three years with an average AUM of not less than Rs. 10,000 crore over the preceding three years.

The alternative route requires the AMC to appoint:

• A chief investment officer with at least 10 years of fund-management experience and an average AUM of not less than Rs. 5,000 crore.
• An additional fund manager with at least three years of experience and an average AUM of not less than Rs. 500 crore.

The AMC must also not have had any action initiated or taken against it under sections 11, 11B or 24 of the SEBI Act, 1992 in the last three years.

On the investor side, the minimum investment threshold is Rs. 10 lakh per PAN across all strategies of a particular SIF, excluding accredited investors and certain mandatory employee investments. These products generally involve higher risk due to their strategy design and may be suitable only for investors with the required risk appetite.

What is mutual fund (MFs)

To understand SIFs better, it helps to revisit what a mutual fund is. A mutual fund pools money from many investors and invests it in a diversified basket in equities, bonds, or other asset classes, as per the scheme category and regulatory guidelines. Investors may start with relatively small amounts, such as Rs. 500 or Rs 1,000, generally. Mutual funds follow prescribed categories and operate within SEBI’s diversification and risk-management framework.

What is portfolio management services (PMS)

Portfolio management services operate differently from pooled funds. In a PMS, a portfolio manager runs a segregated portfolio in the client’s own name instead of pooling assets. PMS requires a minimum investment of Rs. 50 lakh. These portfolios may follow concentrated or customised strategies and therefore involve higher risk, making them suitable only for investors with a very high risk appetite.

What are alternative investment funds (AIFs)

Alternative investment funds are privately pooled vehicles that raise money from investors under a defined investment policy. SEBI regulations specify that, except for certain relaxations, the minimum investment amount in an AIF is Rs. 1 crore.

AIFs fall into three categories:

• Category I (for example, infrastructure or venture capital strategies)
• Category II (for example, private equity or credit strategies)
• Category III (strategies that may use complex or diverse trading approaches, including leverage within SEBI’s limits)

Where do SIFs fit in?

A brief comparison helps illustrate the differences:

• Mutual funds are widely accessible, follow prescribed categories, and require relatively small minimum amounts.
• SIFs are pooled vehicles under the mutual fund regulations but involve higher minimum investment (Rs. 10 lakh) and may use long–short or other advanced strategies with unhedged derivative exposure up to 25% of net assets, subject to SEBI rules. These strategies may involve higher risk.
• PMS accounts hold segregated portfolios with a minimum investment of Rs. 50 lakh, offering customised mandates but also higher risk and concentration.
• AIFs require a typical minimum of Rs. 1 crore per investor and may involve complex structures, unlisted instruments or leverage, depending on the category, which increases risk.

Instead of viewing these as a ladder, it is more accurate to see them as different structures with varying regulatory frameworks, minimum investment amounts and risk levels. SIFs are designed to offer pooled access to relatively advanced strategies for investors who meet the minimum investment and have the required risk appetite, without moving into PMS or AIFs.

Also Read: Mutual Funds vs Equities: Key Differences

Structure and regulatory oversight

All four structures fall under SEBI, but each is governed by a separate regulatory framework:

• Mutual funds and SIFs are governed under the SEBI (Mutual Funds) Regulations, 1996, with SIFs covered through a dedicated chapter and operational circulars.
• PMS operates under the SEBI (Portfolio Managers) Regulations, 2020.
• AIFs operate under the SEBI (Alternative Investment Funds) Regulations, 2012.

Key structural features for SIFs include:

• An AMC must maintain distinct branding and a separate website or dedicated webpage for its SIF.
• SIF offer documents follow the Investment Strategy Information Document (ISID) format prescribed by SEBI.

Liquidity and tenure

SIF liquidity varies by strategy format. SEBI permits SIFs to be launched as open-ended, close-ended or interval strategies. Subscription and redemption frequencies must align with the underlying portfolio and may be daily, weekly, fortnightly, quarterly or at other defined intervals. A redemption notice period of up to 15 working days is permitted. All close-ended and interval SIFs must list their units on recognised stock exchanges, though liquidity on the exchange depends on market demand.

For mutual funds, open-ended schemes usually allow daily subscription and redemption at published NAVs, while close-ended schemes list on exchanges for secondary-market exit.

For PMS, liquidity depends on the underlying securities and the terms in the PMS agreement. Since holdings are in the client’s demat account, there is no concept of daily transaction of pooled units.

Many AIFs, especially private equity and venture capital funds, operate with a fixed tenure where capital may remain invested for extended periods. Liquidity depends on fund documents and SEBI rules.

Investment flexibility and strategic depth

Each structure has different levels of strategic flexibility:

• Mutual funds follow defined categories with specific diversification rules. Derivatives are largely for hedging or efficient portfolio management and there are limits to their usage.
• SIFs also have specific categories but may take unhedged derivative exposure up to 25% of net assets, enabling long–short or dynamic strategies, which may involve higher risk.
• PMS may hold concentrated positions and use derivatives as permitted under SEBI’s rules and the client agreement.
• AIFs, depending on the category, may invest in unlisted securities, structured instruments or use leverage (for some Category III funds), all of which involve higher risk.

Also Read: Mutual Funds vs Stocks: Differences and Which is Better?

FAQs

What is the difference between SIFs and mutual funds?

Both come under the SEBI mutual fund regulations, but SIF investments require a minimum of Rs. 10 lakh and may involve strategies that use derivatives more actively, which may lead to higher risk. Mutual funds generally have lower minimum investment amounts and follow standardised categories.

How do PMS differ from SIFs?

In PMS, the portfolio is held in the client’s own name and SEBI requires a minimum investment of Rs. 50 lakh in funds or securities. In SIFs, investors participate in a pooled structure under the mutual fund regulations, with a minimum of Rs. 10 lakh per PAN across strategies. SIF strategies may involve higher risk due to the permitted use of derivatives.

What are the advantages of investing in Alternative Investment Funds (AIFs)?

AIFs operate with a minimum investment requirement of Rs. 1 crore (in most cases) and may follow strategies involving private equity, venture capital, credit instruments or complex trading approaches. Some categories may use leverage, which increases risk. These structures may be suitable only for investors with higher risk appetite or experience.

Which investment option is suitable for high-net-worth individuals versus retail investors?

• Mutual funds may be suitable for retail investors seeking diversified exposure with lower minimum amounts.
• SIFs may be considered by investors able to allocate Rs. 10 lakh or more and who are comfortable with strategies involving higher risk, including the use of derivatives.

PMS and AIFs may be suitable for investors who can commit Rs. 50 lakh or Rs. 1 crore respectively and have a higher risk appetite or experience with complex strategies.