Introduction

Effective 1st April 2025, a Specialised Investment Fund or SIF is a new avenue to build wealth. The Securities Exchange Board of India (SEBI) introduced the framework in December 2024. SIF is expected to bridge the gap between Mutual Funds and Portfolio Management Systems (PMS). While mutual funds are a convenient investment option, they are not as personalised. On the other hand, PMS offers personalised handling of your investments but requires a considerable investment. While SIF is also meant for high-net-worth individuals, it acts as a middle ground between mutual funds and PMS. Learn all about SIF in this article.

What is SIF in investment?

The new category of investment, SIF is a scheme regulated by SEBI. It's designed for investors who understand the potentially higher risks in the markets and are planning to capitalise on the potentially higher returns such investments can bring. SIF offers flexibility combined with professional management and regulatory oversight. The investment made in SIF is pooled with investment from other seasoned investors and invested in non-traditional assets such as real estate, private equity, infrastructure, etc. These investments have a targeted approach.

Features and advantages of SIF

Investing in SIF involves the following benefits that make it stand out as a formidable option:

·  Minimum investment limit

You must commit a minimum of Rs.. 10 lakh in SIP. This ensures you have the financial strength and the appetite for risk associated with building tactical investment strategies that SIF requires.

·  Expertise-oriented eligibility

Only Asset Management Companies (AMCs) with a minimum AUM of Rs. 100 crore or fund managers with at least three years of experience managing Rs.500 crore can float SIP. An AMC is to also appoint a Chief Investment Officer (CIO) with experience managing Rs.5,000 crore and at least 10 years of service. With this criterion, you can rest assured that only seasoned and credible professionals handle your funds.

·  SEBI-defined flexible funds

SEBI has outlined distinct fund types under SIFs, such as equity long-short, equity ex-top 100 long-short, debt long-short and hybrid long-short. These flexible options across equity, debt and hybrid asset classes meet your varied risk interests, market expertise, and financial goals.

·  Derivatives usage

SIFs include a permitted derivatives exposure of up to 25% of the net assets. This is for purposes beyond hedging. This regulatory leeway by SEBI empowers fund managers to take active calls on market movements, spreads, etc. Therefore, SIFs are far more agile than traditional mutual funds.

·  Customised management

Another stand-out feature of SIF is its flexible subscription and redemption protocol. With SIFs, it is possible to choose cycles that align with your strategy. This may be daily, weekly, fortnightly, or monthly. This facilitates better management of asset-liability and helps with strategy.

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Risk mitigation in SIF

One of the biggest pluses of investing in SIF is its risk-management potential. Here's how a specialised investment fund helps in risk mitigation:

·  Long-short strategies

With this strategy, you can take long positions to hedge your portfolio. Trading in this position with outperforming stocks and trying short positions for underperformers helps.

·  Diversification across asset classes

Some SIFs combine debt and equity. This helps reduce exposure to any single asset class. Thus, the risk is divided.

·  Professional fund management

Only fund houses with a solid track record and significantly experienced managers are allowed to deal with SIFs. So, a high level of expertise is ensured.

·  Controlled derivative use

The exposure to derivatives is capped at 25%. Thus, overleveraging is prevented, which keeps your risk interest in check.

·  Redemption flexibility

You can customise your redemption. There are options to manage the liquidity as you deem fit and maintain efficiency.

Points to consider before investing in SIF

·  Investor profile

SIFs are designed for investors who understand market dynamics and are comfortable with moderate or high risk. The reward for this approach is potentially higher returns if you are careful and stay invested for the long term.

·  Minimum investment requirement

You require a minimum of Rs.10 lakh to invest in SIF. It is a fund meant only for HNIs and well-capitalised investors.

·  Liquidity:

The redemption frequency is not the same as mutual funds. However, you can check the lock-in periods and exit windows before investing.

·  Transparency

As SEBI-regulated SIFs, the strategies involved may be more complex. It helps to understand the fund's methodology.

·  Fund manager's track record

Since you can apply strategies with a fund like SIF, it is crucial to understand the fund manager's experience and past performance.

Conclusion

Now that you have learned what SIF is, it is safe to say that it is a welcome innovation for new opportunities in the financial market. As it fits right between mutual funds and PMS, it gives you the best of both worlds. You can expect regulation, flexibility, professional management, and customisability with your portfolio. As a high-net-worth individual or part of an institution, it makes a good addition to your diversified portfolio.