Understanding SEBI’s New Asset Class: SIFs (Specialized Investment Funds)

Back in December 2024, India’s market regulator SEBI made a big move by amending the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and inserting a new chapter by introducing SIFs (Specialized Investment Fund), a new investment product.

Then a couple of months later, SEBI took the next step by introducing a regulatory framework for SIFs in February 2025.

Since then, SIFs have been creating quite a buzz, with some experts even calling it the ‘UPI moment for India’s mutual funds industry’. But why? Can SIFs really be a game changer? Who can invest in them, and how?

Let's deep dive and simplify it all for you!

What Are SIFs?

Simply put, SIFs (Specialized Investment Funds) are a newly introduced category of mutual funds aimed at investors looking for advanced investment strategies. SIFs aim to provide a higher ticket investment product to meet the needs of the emerging category of investors (about which we will talk later in this blog). A mutual fund gets granted an approval to establish SIF subject to fulfilling the eligibility criterion described by SEBI.

But why was this needed? Weren’t existing investment options like the conventional mutual funds, AIFs and PMS already serving all the purposes? Well, not really.

Let us understand what the SEBI had mentioned as its intention behind the introduction of SIFs.

Why Did SEBI Introduce SIFs?

“The current range of investment products with varying risk-reward profiles, are intended to meet the investment needs of retail, high net-worth and institutional investors. The regulatory framework and prudential norms governing these investment vehicles become progressively more flexible from Mutual Funds (‘MFs’) to Portfolio Management Services (‘PMS’) to Alternative Investment Funds (‘AIFs’), in sync with the investment profile and investment size of these products. Over the years, a gap has emerged between MFs and PMS in terms of portfolio flexibility, creating an opportunity for a new investment product.”

But why did the SEBI feel that there is a big gap between MFs and PMS, which led to creation of SIFs? Well, we have compiled a comparison table showing the key differences between MFs, SIFs, PMS and AIFs:

MFs vs SIFs vs PMS vs AIFs: The Big Gap

So, as you can see from this comparison, there has indeed been a gap to fill between mutual funds and PMS, in terms of minimum investment amount, portfolio flexibility, etc. And to bridge this gap, SEBI went on to introduce the broad regulatory framework for the new investment product–Specialized Investment Fund. Given that the landscape of investment management in India has been significantly evolving over the years, SEBI found it relevant to introduce this new category of SIFs.

The Growing India’s Need For A New Category

Besides this gap between MFs and PMS, there’s another reason why the need for SIFs was a long time calling.

If we look back at the last 10 years or so, the growth of the mutual fund industry, India’s GDP per capita, as well as the number of affluent Indians, has been tremendous. The numbers are there to prove it.

In the case of India’s GDP per capita, it has jumped from $1,590 in 2015 to $2,880 in 2025 (as per IMF), which comes out to be an 80% jump. In simpler terms, this means that India’s average economic prosperity (or the income produced) per person has risen 80% in last one decade.

And what has gone hand in hand is the rise in the popularity of mutual funds investments. An AMFI report had revealed that India’s mutual fund industry’s AUM jumped from Rs 10 lakh crore in 2015 to Rs 68 lakh crore by November 2024(implying a 580% growth!).

So, with more and more Indians coming into the ‘affluent’ category with rise in earnings, SEBI took into consideration the need to create a new investment product for this relatively wealthier category. 

Eligibility Criteria For SIFs

As per SEBI, a registered mutual fund may be granted an approval to establish SIF subject to fulfilling such eligibility criteria and in the manner, as may be specified by the Board. In this regard, the following has been decided:

A registered mutual fund may establish SIF, provided they meet the eligibility criteria under one of the following routes:

1. **Route 1 - Sound Track Record:
   **1) Mutual Fund has been in operation for a minimum period of 3 years and has an average asset under management (‘AUM’) of not less than INR 10,000 crores, in immediately preceding 3 years.
   2) No action has been initiated or taken against the sponsor/asset management company (‘AMC’) under section 11, 11B, and/or Section 24 of the SEBI Act, 1992 during the last 3 years.

2. Route 2 - Alternate Route:

   1. The AMC has appointed: a). A Chief Investment Officer (‘CIO’) for the SIF with an experience of fund management of at least 10 years and has managed an average AUM of not less than INR 5,000 crores b). An additional Fund Manager for the SIF with experience of fund management of at least 3 years and has managed an average AUM of not less than INR 500 crores.

   2. No action has been initiated or taken against the sponsor/AMC under section 11, 11B, and/or Section 24 of the SEBI Act, 1992 during the last 3 years.

3. The AMC may share resources for operations across mutual funds and SIF. A registered Mutual Fund shall file an application for prior approval with SEBI for establishment of an SIF, in the manner as may be specified by SEBI.

Investment Strategies Allowed By SEBI For SIFs

As per SEBI’s circular, the following are the investment strategies permitted for SIFs, after consultation with the mutual funds industry:

Equity Oriented Investment Strategies

Maximum short exposure through unhedged derivative positions in equity and equity related instruments of other than large cap stocks: 25% | An open ended/interval investment strategy investing in equity and equity related instruments including limited short exposure in equity through derivative instruments, of stocks other than large cap stocks. | Daily or any lesser redemption frequency, as may be decided by the AMC | | Sector Rotation Long-Short Fund | Minimum investment in equity and equity related instruments of maximum 4 sectors – 80%

Maximum short exposure through unhedged derivative positions in equity and equity related instruments: 25%* *Short exposure shall apply at the sector level, covering all stocks within that sector held in the portfolio. For instance, if the fund takes a short position in the Auto sector, all Auto sector stocks in the portfolio must be held as short positions. | An open ended/interval investment strategy investing in equity and equity related instruments including limited short exposure in equity through derivative instruments, of maximum four sectors. | Daily or any lesser redemption frequency, as may be decided |

Debt Oriented Investment Strategies

*Short exposure shall be across the sector, applicable for all the instruments of that particular sector held in the portfolio. Example: If the fund is short on Auto sector, then all debt instruments of the Auto sector, held in portfolio, shall be held as short positions. | Interval investment strategy investing in debt instruments including limited short position in debt instruments, of minimum two sectors. | Once in a week or any lesser redemption frequency, as may be decided by AMC |

Hybrid Investment Strategies

*SEBI has also mentioned that only one investment strategy shall be permitted to be launched under each of the aforementioned categories in order to avoid proliferation of investment strategies.

Minimum Amount For Investment In SIFs

1. As per SEBI, SIFs shall not accept an investment amount less than Rs 10 lakh from an investor, across all investment strategies in the manner as may be specified by the Board; provided that the requirement of minimum investment amount shall not apply to an accredited investor.

-The AMC shall ensure that an aggregate investment by an investor across all investment strategies offered by the SIF, at the Permanent Account Number (‘PAN’) level,is not less than Rs 10 lakh).

-The Minimum Investment Threshold of Rs 10 lakh shall apply exclusively to investments under SIF and shall not include investments made by the investor in regular MF schemes of the same AMC.

-The AMC may offer systematic investment options such as Systematic Investment Plan (‘SIP’), Systematic Withdrawal Plan (‘SWP’) and Systematic Transfer Plan (‘STP’) for investment strategies launched under the SIF, while ensuring compliance with the Minimum Investment Threshold amount.

Note: In April 2025, SEBI had ended the confusion among investors regarding the allocation of funds across different SIF offerings from the same fund house. “The minimum investment by an investor in all SIF strategies should be at least Rs 10 lakh at the permanent account number (PAN) level.” The market regulator clarified that its minimum investment requirement of Rs 10 lakh applies at the PAN level for all “strategies” under a single asset management company's SIF, rather than on a per-scheme basis.

SEBI’s Restriction On Investments In SIFs

In addition to Regulation 49(AA) of the MF Regulations which specifies various investment restrictions for investments under SIF, other investment restrictions shall be as follows:

1. An investment strategy under SIF shall not invest more than 20% of its NAV in debt and money market securities issued by a single issuer and rated AAA or 16% in securities rated AA or 12% in securities rated A and below. These instrument limits may be extended by up to 5% of the NAV of investment strategy with prior approval of trustees of MF and board of AMC.

2. An investment strategy under the SIF shall not invest more than 25% of its NAV in debt and money market securities of a particular sector.

Taxation Of SIFs

SEBI has kept the taxation of SIFs the same for mutual funds. In case of equities, STCG tax of 20% and LTCG tax of 12.5% get levied. The holding period for STCG is less than 1 year, and if held over 1 year, it gets treated as LTCG). In case of debt mutual funds, your capital gains get taxed as per your applicable income tax slab.

Fees & Expenses For SIFs

In its April 2025 circular, SEBI has mentioned a list of fees and expenses which would be involved in case of SIFs, but the market regulator has left it to the AMCs or the SIF’s website for the finer details. Once AMCs begin to launch their SIFs, more details regarding their fees and expenses are expected to be available for investors.

Quant Set To Become First AMC To Launch SIFs In India

Recently, on August 2nd, 2025, SEBI gave Quant Mutual Fund the approval to launch its SIF (Specialized Investment Fund) this month, which makes Quant the first asset management company in India to finally launch such funds.

Quant is expected to launch India’s First Long- Short Fund in the newly created SIF category in August 2025.

Who Should Look To Invest In SIFs?

Now comes the big question-Who should invest in SIFs? Are they a good fit for every investor?

Well, the answer lies in the reason SEBI introduced SIFs, which is to bridge the gap between PMS (Portfolio Management Services) and mutual funds and thus provide that much needed flexibility to the investors (especially HNIs). But how do SIFs plan to do that? Through their flexible and tailored PMS strategies while at the same time maintaining the pooled structure and regulatory oversight of mutual funds.

Contrary to the conventional concept of mutual funds, SIFs come with a twist (or rather flexibility) by allowing fund managers to follow ‘specialized’ investment strategies (such as long-short equity, sectoral rotation, and multi-asset diversification) within SEBI’s regulatory purview. This framework provides HNIs and institutional investors the much needed access to advanced investment strategies through SIFs.

Also, given that the minimum eligibility for an individual to invest in SIFs itself is of the amount of Rs 10 lakh, this asset class is, at least at the present, targeted at the following investors:

1. High net worth individuals (HNIs) and accredited investors: SIFs are primarily targeted at high-net-worth individuals (HNIs) and accredited investors who are having a high disposable income of at least Rs 10 lakh.

2. Institutional investors: Entities such as pension funds, insurance companies, corporates, trusts, and family offices are eligible and often participate in SIFs due to their expertise and ability to allocate larger sums to sophisticated investment products

3. Sophisticated and experienced investors: SIFs are suitable for investors who have a strong understanding of advanced investment strategies, including derivatives, short selling, and sectoral rotation. Note that SIFs may not turn out to be suitable for beginners or those unfamiliar with complex financial instruments and market risks.

4. Investors with high-risk tolerance: SIFs involve higher risk and volatility compared to traditional mutual funds, as they invest in niche and alternative asset classes like private equity, real estate, infrastructure, and distressed assets.

So, investors should have a high risk appetite and be comfortable with potential fluctuations in value, as SIFs use leverage and dynamic strategies that can lead to significant gains or losses.

5. Investors seeking diversification into untapped sectors: SIFs offer investment opportunities to those looking to diversify their portfolios beyond traditional equity and debt, and who are interested in tapping into underrepresented or emerging sectors. In this way, SIFs are also able to offer the potential for higher returns by providing access to opportunities that are typically unavailable through mutual funds, such as private equity or sector-specific investments.

Conclusion

It’s fair to say that SIFs as an investment category do seem to be showing some promise and potential, which is perhaps why India’s market regulator SEBI took interest in introducing this investment product. As the days go by, some more innovation and regulations are expected to come into the picture, which will shape up the future of SIFs in India’s mutual fund industry, and investors will then get to know whether SIFs are worth the hype or not. We’ll have to wait and watch!

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Please note that this is an opinion blog and not official research advice. This blog aims to promote informed decision-making and neither encourages nor discourages you from investing in any asset class.

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