Revised Guidelines on Specialised Investment Funds (SIF): Minimum Investment of ₹10 lakh, and More

On February 27, 2025, the capital market regulator, the Securities and Exchange Board of India (SEBI) revealed a new regulatory framework for Specialised Investment Funds (SIFs), effective from April 1, 2025. The objective behind rolling out SIFs is to fill the gap between mutual funds and Portfolio Management Services (PMS) by offering enhanced portfolio flexibility.

Under the revised regulations, investors are required to make a minimum investment of ₹10 lakh across all SIF strategies, excluding accredited investors. For those using systematic investment plans (SIP), systematic withdrawal plans (SWP), or systematic transfer plans (STP), the total investment must remain above ₹10 lakh. If the market value falls below this threshold due to fluctuations, investors are allowed to redeem the remaining balance.

The rules also set limits on investments in company debt securities: up to 20% for AAA-rated securities, 16% for AA-rated, and 12% for A-rated or lower securities from any one company. Additionally, no more than 25% of the net asset value (NAV) can be allocated to a single sector.

Eligibility Criteria for SIF Establishment

To establish an SIF, a registered mutual fund must meet one of two eligibility criteria. The first option is for the mutual fund to have been active for a minimum of three years, with an average asset under management (AUM) of ₹10,000 crore over the last three years, and no regulatory action taken against the sponsor or AMC in the past three years.

The second option requires the mutual fund to appoint a Chief Investment Officer (CIO) with at least 10 years of fund management experience and an average AUM of ₹5,000 crore. Additionally, the fund must hire a Fund Manager with at least three years of experience and an AUM of ₹500 crore. No regulatory action should have been taken or initiated against the sponsor or AMC in the past three years. Approval from SEBI must also be obtained before setting up an SIF.

Investment and Risk Guidelines for SIFs

SIFs will be allowed to take up to 25% exposure in derivatives, excluding hedging activities, and may offset derivative positions on the same security in specific cases. Funds will have different subscription (buy-in) and redemption (withdrawal) frequencies, with a redemption notice period of up to 15 working days.

Closed-ended and interval funds must be listed on stock exchanges. Funds with non-daily redemption options will be categorized as “Interval Investment Strategies.” SIFs must adhere to a single-tier benchmark, such as the Nifty50 for equity and debt indices for debt funds. Risk will be classified into five levels (Risk Band 1 to 5), with monthly reviews.

SEBI requires that only certified distributors be authorized to sell SIFs. SIFs will need to regularly disclose portfolio details, liquidity risks, and scenario analyses on their websites. Any advertising related to SIFs must include a standardised risk disclaimer.

Conclusion

The regulatory updates by SEBI aim to provide enhanced flexibility for investors, ensuring effective risk management and transparency in an evolving investment environment.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.