How Specialised Investment Funds bridge the gap between mutual funds and PMS

With the recent introduction of Specialised Investment Funds (SIFs), Indian investors have a new avenue to potentially build wealth over time.

Introduced by the Securities and Exchange Board of India (SEBI) in December 2024, SIFs aim to bridge the gap between mutual funds and Portfolio Management Services (PMS), offering a middle ground for investors seeking advanced investment strategies with a lower entry barrier than PMS.

With a minimum investment threshold of Rs.10 lakh, SIFs cater to higher income individuals. Unlike traditional mutual funds, SIFs are designed to accommodate higher risks for potentially better returns, making them suitable for seasoned investors who want more control over their portfolios.

• Table of contents

1. What do SIFs offer investors?
2. Features of specialised investment funds
3. Risk mitigation in SIFs
4. Difference between SIF and mutual funds
5. Who should invest in SIF?
6. Benefits of specialised investment funds

What do SIFs offer investors?

SIFs provide a unique blend of flexibility, diversification, and access to alternative asset classes. Here’s what you can expect.

• Access to niche markets: SIFs invest in sectors like private equity, venture capital, real estate, and distressed assets—areas typically inaccessible through mutual funds.
• Investment options: You can choose from open-ended, close-ended, or interval-based funds depending on your liquidity needs and investment horizon.
• Higher risk-return potential: By targeting high-growth sectors, SIFs aim to deliver superior returns compared to traditional investment vehicles.
• Regulatory oversight: SEBI ensures transparency and investor protection through stringent regulations.

Features of specialised investment funds

SIFs come with distinct features that set them apart from other investment options.

1. Minimum investment threshold: Rs.10 lakh for individual investors, making it accessible yet exclusive.
2. Structured flexibility
   • Open-ended funds allow you to enter or exit anytime.
   • Close-ended funds have fixed tenures for long-term investments.
   • Interval funds offer periodic redemption opportunities.
3. Diverse asset allocation: Can invest in debt instruments, equities and REiTs/InvIts
4. Professional management: Managed by certified fund managers with expertise in niche markets.
5. Expense ratio: Governed by SEBI’s mutual fund regulations, ensuring cost efficiency.

Risk mitigation in SIFs

While SIFs target high-risk investments, SEBI has implemented robust risk management measures.

• Diversification limits: Capped exposure to individual securities and issuers reduces concentration risk.
• Transparency requirements: Detailed disclosures in offer documents ensure informed decision-making.
• Regulatory safeguards: Strict compliance with SEBI guidelines minimises operational risks.

These measures make SIFs a relatively less risky option compared to unregulated investment schemes while still allowing for higher return potential.

Difference between SIF and mutual funds

While mutual funds can be suitable for retail investors seeking more risk mitigation measures, SIFs cater to those seeking advanced strategies and higher returns.

Who should invest in SIF?

SIFs are tailored for -

1. High-income earners: Investors with significant capital looking for sophisticated strategies.
2. Accredited investors: Individuals or institutions meeting SEBI’s accreditation criteria.
3. Risk-tolerant investors: Those willing to accept higher risks for potentially greater rewards.
4. Experienced market participants: Investors seeking more flexibility in investment strategies and asset allocation than that offered by mutual funds.

If you fall into any of these categories and seek diversification beyond traditional investments, SIFs could be an excellent choice.

Benefits of specialised investment funds

1. Enhanced flexibility
2. Higher return potential
3. Portfolio diversification
4. Regulatory oversight
5. Lower entry barriers compared to PMS

Conclusion

Specialised Investment Funds represent an interesting addition to India’s financial ecosystem. By bridging the gap between mutual funds and PMS, they offer an option for sophisticated investors seeking advanced strategies without exorbitant entry costs. Whether you’re looking to diversify your portfolio or capitalise on emerging markets, SIFs can provide the tools to work towards your financial goals.

FAQs:

What is SIF (Specialised Investment Fund) introduced by SEBI?

A Specialised Investment Fund is a regulated investment vehicle designed for accredited investors willing to take on higher risks for potentially higher returns. It bridges the gap between mutual funds and PMS by offering customisable strategies and access to niche markets.

Are SIFs more flexible than mutual funds?

Yes, SIFs offer greater flexibility in portfolio allocation unlike mutual funds that have to follow a certain allocation pattern based on the fund category. However, there are still regulatory restrictions on how much exposure the fund can take to a single security.

How does SIF work?

SIF pools capital from accredited investors and can invest it in debt securities, equities, REITs/InvIts. Managed by certified professionals, these funds aim for higher returns while adhering to SEBI’s regulatory framework.

What investment strategies does SIF offer?

The investment strategy depends upon the fund manager but is generally more flexible than that offered by mutual funds.

Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.