A Guide to Investing in Specialized Investment Fund (SIFs)

Did you know that over 3 crore Indian households invest in mutual funds, while only about 1% of them qualify for high-ticket Portfolio Management Services? This gap has left growth-oriented investors underserved for years. Let’s discuss what will bridge this divide- SEBI’s recently introduced Specialized Investment Funds (SIFs). A category designed to offer an elite investment experience to retail investors previously accessible only to the HNIs and ultra-HNIs. In the article ahead, we will discuss what SIFs are, who this category benefits, the role of SIF in an investor’s portfolio, what SIF-driven investment strategies are, and the risks and considerations when investing.

What are Specialized Investment Funds?

SEBI introduced this focused investment option for investors with better experience or higher amounts to invest. A focused investment category ideal for strategy-based investing, blending multiple approaches across equity, debt, and hybrid strategies. This will allow the investors to navigate different market environments with agility and professional-backed management.

These funds will be ideal for investors who are comfortable with taking a slightly higher risk in the pursuit of potentially higher returns. While SIFs are designed to bridge the gap between Mutual funds and PMS, they will not be easily accessible through regular investment platforms. The specialized investment fund will be professionally managed and follow strict rules so that the first-time SIF investor stays protected.    

How Specialized Investment Funds Work?

Unlike mutual funds, SIFs will work on predefined strategies executed by trained investment advisors. Who, depending on the market condition, will take long or short positions, rebalance asset allocation, and rotate between sectors to stay agile regardless of what the market environment entails.

In simple words, if you are investing in SIF, invest with these beliefs:

• Long: You buy when you expect prices to rise.
• Short: You sell when you expect prices to fall.
• Allocation shift: You adjust the investment mix of equity, debt, or other assets based on the market reaction.

Note: Before investing in Specialized Investment Funds, read the strategy documents that outline its strategies, risk parameters, redemption rules, and interval investment strategies.

To know more about how Specialized Investment Funds work, watch now:

SIF VS Mutual Funds VS PMS/AIF

While there are multiple mentions of how SIF will bridge the gap between MF and PMS/ AIF, refer to the table below to understand the nomenclature, minimum investment, and the nuances of SIF as an investment.

Role of SIFs in an Investor’s Portfolio 

Before we move to understanding the role of SIFs in an investor’s portfolio, let’s understand the technicality of who this investment is for. Minimum investment threshold in SIF has been kept significantly higher than the regular mutual fund and is currently 10 Lakhs at the pan level. 

Let’s now understand how SIF’s tactical, risk-managed, and yield-enhancing tactics will improve your portfolio performance over market cycles and create a new layer of opportunities in your portfolio. 

1. Enhanced Diversification: By utilizing long-short strategies, structured credit, and derivative overlays, SIFs expand diversification beyond conventional debt and equity.

2. Decreased Reliance on Market Cycles: By providing a middle ground between pure debt and pure equity, their strategies enable customized risk-return combinations, and they lower downside risk, all of which contribute to more balanced portfolios.

3. “Fixed-Income Plus” Advantage: SIFs seek to improve overall fixed-income allocations by offering higher returns than conventional bonds while retaining lower volatility than stocks.

4. Performance Across Market Conditions: By concentrating on return efficiency—making more money per unit of risk—SIFs may be able to produce returns in both rising and falling markets using tactical and specialized techniques.

5. Closing the Investment Gap: SIFs close the gap between mutual funds and PMS/AIFs by providing sophisticated strategies at comparatively lower minimum investments. They also introduce intricate strategies like long-short and leverage into a regulated mutual fund framework.

SIFs provide a new, tactical, risk-managed, and yield-enhancing layer that can improve portfolio performance throughout market cycles, whereas the majority of investors currently only use basic debt and equity funds.

SIF-oriented investment strategies

Like investments under mutual funds, SIF also allows you to select the asset class you wish to invest in, with segregation that may follow equity-oriented, debt-oriented, or hybrid investment strategies. Investment strategies permitted to be launched under SIF at this stage. 

Equity-Oriented Investments

1. Equity Long–Short Fund

• An open-ended/interval equity investment strategy.
• Requires a minimum 80% allocation to equity and equity-related instruments.

2. Equity Ex-Top 100 Long–Short Fund

• An open-ended/interval equity investment strategy.
• Minimum 65% investment in equity and equity-related instruments of companies outside the top 100 by market capitalization.

3. Sector Rotation Long–Short Fund

• An open-ended/interval equity investment strategy.
• Minimum 80% allocation to equity and equity-related instruments, with exposure to a maximum of 4 sectors.

Debt-Oriented Investment Strategies – Key Highlights

1. Debt Long–Short Fund

• An interval debt investment strategy.
• Invests in debt instruments across maturities, including unhedged short exposure through exchange-traded debt derivatives.

2. Sectoral Long–Short Fund

• Invests in debt instruments across at least two sectors.
• Allows a maximum of 75% exposure in a single sector.

Common Guidelines for All Debt Strategies

• Maximum 25% short exposure through unhedged derivative positions in debt instruments.
• For sector-based strategies, short exposure applies across the entire sector, not individual securities.

Hybrid Investment Strategies – Key Highlights

1. Active Asset Allocator Long–Short Fund

• An interval investment strategy dynamically allocating across:
  
  • Equity
  • Debt
  • Equity & debt derivatives
  • REITs/InvITs
  • Commodity derivatives
• Features include limited short exposure.

2. Hybrid Long–Short Fund

• An interval investment strategy combining equity and debt investments.
• Minimum investment requirements:
  • 25% in equity & equity-related instruments.
  • 25% in debt instruments.

Common Guidelines for All Hybrid Strategies

• Maximum 25% short exposure permitted through unhedged derivative positions across both equity and debt instruments

Fincart Views On When To Invest In SIFs

As an investment advisory firm, if you are interested in investing in Specialized Investment Funds, select them with appropriate caution. Here is a quick framework you should follow: 

Step 1: Clarify your investment goal

The first step in investing is to understand why you are investing in a particular asset. By investing in this specialized investment fund, are you looking for capital preservation, growth, better returns, or to support a financial goal? If your goals are aligned with the investment objective, another question to consider is if the market dips will your goal be compensated?  We, as your trusted mutual fund consultant, advise you to be extremely specific about what you wish to achieve and whether investing in SIF is the best vehicle to get you there. 

 Step 2: Assess Your Fund Manager’s Expertise 

The success of any investment strategy heavily depends on the fund manager’s skills. Thus, before trusting any mutual fund consultant or wealth consultant, look for: 

• Relevant experience in investing in the specific field 
• Personal and professional credentials and accreditation 
• Track record in similar strategies 
• Investment philosophy alignment 

Ask your fund managers the tough questions on the periods of underperformance and management strategies during market dips.

Step 3: Understand The Strategy Nuances Thoroughly 

While interacting with our clients, we often advise them that they should only invest in a scheme when you are well versed in explaining the same to someone else. Ensure that your wealth advisor gives you a detailed strategy, explanations of the nuances of each strategy. If the strategy seems to be too hard to understand or too good to be true, it’s ok to let go. 

Step 4: Evaluate The Risk Management 

While investing in any scheme, not just SIFs, ensure to look for a robust risk management framework that includes a stop-loss mechanism, your diversification requirements, and strategy. A robust risk management is one that clearly determines the difference between strategies that survive the market turbulence vs the ones that don’t. 

Step 5: Consider The Fee Structures Carefully

The last and most important step is to understand the total expense ratio. Carefully understand both the fixed and performance-based fees, the hurdle rate, and the high-watermark provisions for the performance fee. While calculating the real returns, make sure to account for the return that you will get post the fee deductions. 

The Future Of SIFs

As India’s investors and financial market continue to evolve, investment products like SIFs are likely to become a well-established component of the landscape. We have full confidence that a well-run equity long-short could surpass Nifty returns in a choppy market. However, as a trusted mutual fund advisor, before suggesting the same to an investor, we are cautiously optimistic rather than enthusiastically bullish. Thus, our advice to you as investors will be to approach SIFs with caution, make sure that your wealth manager does their homework right, and the investment aligns with your investment style and financial goals.

For more insights on investments, or for any help planning your finances and investments, you can reach out to us. 

FAQs

What is a SIF in a mutual fund?

SIF is a new category launched by SEBI to bridge the gap between retail-friendly mutual funds and HNI-oriented Portfolio management services. The simplest explanation for the same is that SIFs are strategy-driven investment options for investors who want more sophisticated strategies than mutual funds and are ok taking higher risks for potentially higher returns. A specialised investment fund will offer an investor a chance to experience professional agile management similar to PMS, but at a considerably lower minimum investment.

Is SIF better than SIP?

While SIF and SIPs sound similar, they are completely different investment options. A SIP or systematic investment plan is a method of investing in mutual funds monthly. SIF, or systematic investment fund, is an investment product that employs advanced strategies and requires higher capital and is suitable only for experienced investors. Commenting on which is better would not be possible, as Investments under SIPs or SIFs will serve different investors and different goals. 

Is SIF safe to invest in?

SIFs are regulated by SEBI and thus are safe to invest in. However, as the scheme carries a higher risk and is a strategy-driven product, they are designed for investors who are willing to take higher risks in pursuit of better returns.