SEBI introduces Specialised Investment Funds – New asset class with a minimum investment of Rs 10 lakh

The Securities and Exchange Board of India (SEBI) introduced a new investment vehicle that sits at the intersection of mutual funds and portfolio management service (PMS). Called ‘Specialised Investment Funds’ or SIF, these products will have a minimum investment threshold of Rs 10 lakh and offer investors exposure to advanced investment strategies.

These investment strategies could include exposure to equity, debt, real estate investment trusts (REITs) or derivatives like futures and options (F&O).

This would mean that depending on the individual strategy chosen by the asset management company (AMC), an SIF could offer a higher risk, higher return profile compared to a regular equity fund.

The demand for a SIF-like product has long been pending, as investors have sought a product that offers something more advanced than a regular mutual fund but is more affordable than PMS, which offers exotic strategies but keeps the minimum investment threshold at Rs 50 lakh per investor.

The SIF will also be structured like a mutual fund, offering similar investment and redemption procedures and similar tax treatment for both the end investor and the fund company managing the assets.

Over time, PMSs have evolved to become complex products, especially for the AMC, as they manage each investor portfolio individually.

To safeguard investor interest, SEBI has imposed certain limitations on the SIF, such as a maximum of 10% investment in any one listed company at the fund level and 20% for any issuer of debt security. However, government securities (G-Secs) and treasury bills (T-bills) are exempt from the restrictions.

Fund managers managing the SIF will need to be certified by the National Institute of Securities Market (NISM).

The structure of the SIF will allow the fund manager to pursue not only strategies seeking excess returns through bolder investment bets or exotic derivative strategies but also optimising the risk-return profile by seeking exposure to a more diversified asset exposure depending on the market environment.

Since SIFs will follow a mutual fund structure, their fee structure will operate within the framework defined for mutual funds. The fees and expenses for the investment strategies under SIF will be per Regulation 52 of the mutual fund regulations.