What are Specialised Investment Funds (SIFs)?

India’s startup ecosystem has been making headlines, with companies like Zepto and Lenskart attracting massive investments and showcasing the potential for exponential growth. Imagine being able to participate in such high-growth sectors without directly managing the complexities of individual investments.

This is exactly what SEBI’s newly introduced Specialised Investment Funds (SIFs) aim to offer. By bridging the gap between mutual funds and portfolio management services (PMS), SIFs allow experienced investors to explore opportunities in sectors like technology startups, fintech, and private equity.

Using professional management and regulatory oversight, SIFs open the door to targeted, high-growth investments for those willing to take calculated risks. Let’s explore what SIFs are, why they’re creating a buzz, and how they could redefine investing in India.

Why SEBI Introduced Specialised Investment Funds?

Investors in India usually choose between mutual funds and PMS. But there’s a gap between the two:

Mutual Funds

• Easy to start: You can invest small amounts, making them perfect for beginners and small investors.
• Set strategies: Mutual funds follow predefined strategies, which means less flexibility for investors or fund managers.
• Lower risk: These are safer and are best suited for conservative investors.

Portfolio Management Services (PMS)

• Customised investments: PMS tailors your investments to meet your specific financial goals.
• High investment: You need at least ₹50 lakh to start, which makes it unaffordable for most people.
• For big players: PMS is for experienced investors who can handle higher risks.

This is where Specialised Investment Funds (SIFs) come in. With a lower minimum investment of ₹10 lakh, SIFs cater to investors who want more flexibility and higher returns than mutual funds but cannot afford PMS.

SIF Meaning

A Specialised Investment Fund (SIF) is an investment option designed for people who understand the markets and are willing to take higher risks for potentially higher returns. Here’s what you need to know about SIFs:

• Minimum investment: To invest in a SIF, you need to put in at least ₹10 lakh.
• Flexibility: Fund managers have more freedom to try new strategies compared to mutual funds.
• Variety: SIFs can invest in everything from stocks and bonds to real estate and private equity.

However, this freedom comes with rules to ensure safety and prevent overly risky behaviour. Let’s take a look at these guidelines.

Guidelines for SIF Investments

1. Debt instruments

• SIFs can invest up to 20% of their assets in debt issued by a single entity.
• This limit can increase to 25% with approval from trustees.
• Investments in government securities and treasury bills are exempt from these restrictions.

2. Equity investments

• SIFs can hold up to 15% of a company’s paid-up capital with voting rights.
• They can invest up to 10% of their Net Asset Value (NAV) in any one company’s equity shares.

3. REITs and InvITs

• SIFs can allocate 20% of their NAV to Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs).
• However, no more than 10% can be invested in a single issuer.

4. Derivatives

• SIFs can invest in derivatives but must follow strict limits to control risk.
• Total exposure through derivatives cannot exceed 100% of the fund’s net assets.

These rules ensure that SIFs stay diversified and don’t take on too much risk in one area.

What are the Advantages of SIFs?

1. SIFs let you invest in specialised areas like real estate, private equity, or emerging industries.
2. Since SIFs take on higher risks, they also offer the chance for higher rewards compared to traditional mutual funds.
3. Expert fund managers handle your investments, ensuring that decisions are backed by deep market knowledge.
4. SIFs help you spread your investments across different sectors, reducing risk and increasing stability.

Things to Consider Before Investing in SIFs

• Eligibility: SIFs are designed for institutional investors, professional investors, and HNIs with a minimum investment requirement of ₹10 lakh.
• Risk tolerance: Since SIFs focus on specific sectors, they carry higher risks compared to diversified mutual funds. Understand your risk appetite before investing.
• Liquidity: SIFs often invest in illiquid assets like real estate or infrastructure, making it difficult to withdraw your investment quickly.
• Regulations: Familiarise yourself with SEBI’s guidelines and the specific terms of the SIF you’re interested in to avoid surprises.

SIF vs Mutual Funds

Who Should Invest in SIFs?

• Experienced investors: Those who have a strong understanding of markets and can handle higher risks.
• HNIs and institutions: Investors with substantial capital who want to explore niche opportunities.
• Risk-takers: If you’re comfortable with market volatility, SIFs could be a good option.

Conclusion

Specialised Investment Funds (SIFs) bring a fresh approach to investing in India, offering flexibility, innovation, and the potential for higher returns. They fill the gap between mutual funds and PMS, making them a great choice for experienced investors who want more control over their investments.

However, SIFs come with higher risks and complexities. It’s important to understand these aspects fully and consult a financial advisor to ensure that SIFs align with your financial goals.

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