Specialized Investment Funds (SIFs) in India

The New Frontier for Advanced Investors: Part-1

The Indian investment landscape has evolved dynamically, and Specialized Investment Funds (SIFs) have emerged as the latest investment tool for seasoned investors participating in financial markets. 

For those looking for a midway between traditional mutual funds (that pool in money from many investors into a common strategy) and portfolio management services or PMS (personalised investment solutions managed by professional portfolio managers), SIFs is the answer.

Introduced by the Securities and Exchange Board of India (SEBI) and effective from April 1, 2025, SIFs offer the sophistication of PMS with the lower entry thresholds of mutual funds.

Historically, investors in India have had to choose between:

• Mutual Funds (MFs): Lower risk, accessible to retail investors, but with limited strategy flexibility.
• Portfolio Management Services (PMS): Higher risk, highly customizable, but with a high minimum investment (usually ₹50 lakh and above), suited for the ultra-wealthy, high net-worth individuals or institutions.

This presented a clear gap for investors seeking greater flexibility and innovation than mutual funds allow, without making the high minimum commitments of PMS. 

SIFs were created to address this very gap, giving India’s High Net Worth Individuals (HNIs), institutional investors, and sophisticated market participants new investment pathways into diversified, higher-risk, higher-returns asset classes.

SIFs are SEBI-regulated pooled investment vehicles that allow greater flexibility in portfolio construction and asset allocation than regular mutual funds, while lowering entry barriers and maintaining robust investor protection mechanisms.

Key Characteristics of SIFs:

• Minimum investment: ₹10 lakh per investor.
• Target audience: Accredited and experienced investors – chiefly HNIs and institutions.
• Strategies allowed: Long-short equity, focused sector rotation, debt long-short, dynamic asset allocation, with 25% in unhedged short exposures.
• Diversification: Access to non-traditional sectors such as private equity, real estate, venture capital, clean energy, distressed assets, and more.
• Fund structure: Options for open-ended, close-ended, or interval funds, with varied redemption frequencies (daily to monthly).
• Regulation and disclosure: Strict SEBI compliance, risk-band transparency (risk ratings 1-5), mandatory monthly portfolio disclosures, robust governance frameworks. 

1. Advanced Portfolio Strategies with Lower Entry Barriers: Access to complex investment techniques (e.g., long-short equity, sector themes, hybrid asset allocation) generally accessible only through PMS or hedge funds, but with a lower entry barrier of ₹10 lakh per investor.
2. Broader Diversification: With greater flexibility in asset classes and sector focus, SIFs overpower traditional mutual funds by opening doors to high-growth sectors and alternative investments such as fintech, REITs, infrastructure, and more.
3. Potential for Higher Returns: SIFs, by relaxed allocation caps and active management, offer higher returns than traditional mutual funds. However, they are suited for those prepared to accept higher risks. The higher the risk, the higher the reward.
4. Tailored Offerings: Strategies can be customized around growth, capital preservation, or hedging, fitting sophisticated investor goals.
5. Regulatory Safeguard: Despite their flexibility and higher-risk, higher return concept, SIFs operate under SEBI’s mutual fund regulations, ensuring transparency, disclosure, and investor protection mechanisms not found in unregulated investment avenues.
   
   

Read more on AIFs vs SIFs vs Traditional Mutual Funds and Why Should MFDs Promote SIFs to Investors?