Last week, I had a conversation with a client who asked me an interesting question: “Are there any investment options that can give me more flexibility than mutual funds but don’t require the ₹50 lakh minimum investment that comes with portfolio management services?”
This question perfectly captures why Specialized Investment Funds (SIF) are gaining attention in the investment world. It’s a new investment vehicle that aims to bridge the gap between mutual funds and PMS. As a fee-only financial advisor, I’ve been closely reading this development, and I believe it’s important for investors to understand what SIFs bring to the table.
Table of Contents
What is a Specialized Investment Fund?
SEBI Circular introduced SIF on February 27, 2025 and on April 9, 2025 specified the Regulatory Framework for Specialized Investment Funds. SIFs are regulated under the SEBI (Mutual Funds) Regulations, 1996
A Specialized Investment Fund is essentially a new investment category that allows fund managers to design more flexible strategies compared to traditional mutual funds. Think of it as a middle ground between the accessibility of mutual funds and the customization of portfolio management services (PMS).
What makes SIFs unique? They come with a ₹10 lakh per investor minimum investment threshold, making them more accessible than PMS while still targeting sophisticated investors who understand market complexities. The fund manager gets significantly more flexibility in terms of investment strategies, sector allocation, and asset management approaches.
But here’s the reality: SIF investment isn’t magic. As one industry expert recently explained, “SIF ideally, because of the flexibility it gives you, should be able to provide you with solutions, asset classes, or risk-return profiles that are not available in a mutual fund.” However, traditional mutual funds will still serve 70-80% of your portfolio needs—SIF is meant to complement, not replace, your core holdings.
Who Can Launch SIFs?
SEBI has created two specific pathways for fund houses to launch SIF:
✅ Established players: Mutual funds with 3+ years of operation and at least ₹10,000 crore average AUM in the last three years, provided they maintain a clean regulatory record.
✅ Newer entrants: AMCs can meet the requirements by hiring specialist personnel, such as a fund manager with 3+ years of experience managing ₹500+ crore and a chief investment officer (CIO) with 10+ years of experience managing ₹5,000+ crore.
Specialized Investment Fund India vs Traditional Funds
Let me share a story that illustrates this perfectly. Recently, I was working with a client who wanted exposure to a specific sector rotation strategy combined with some long-short positions. Traditional mutual funds follow specific mandates that don’t allow for such complex strategies. This is where SIFs shine.
While mutual funds and portfolio management services serve different purposes, SIFs create a new space. Traditional mutual funds are essential and reliable. SIF, on the other hand, are like specialized cuisines that add variety and unique flavors to your meal.
The key difference lies in flexibility. Traditional investment vehicles like mutual funds have strict mandates. An equity fund must maintain 80% equity exposure, and a debt fund follows specific debt allocation rules. SIFs, however, can be designed as hybrid investment strategies that combine multiple asset classes in ways that weren’t possible before.
Related: Mutual Fund Performance: Rolling Returns Vs Trailing Returns
These pooled investment vehicles allow fund managers of SIFs to employ strategies like:
🔹 Long-short positions across different sectors
🔹 Derivatives for hedging and return enhancement
🔹 Multi-asset plays that traditional funds can’t execute
🔹 Sector-specific bets with more concentrated exposure
Benefits Of Investing In Specialized Investment Funds
As someone who’s spent years helping clients navigate investment opportunities, I see several compelling advantages that SIFs bring to the table:
Diversified exposure
SIF can provide exposure across equity, debt, and hybrid instruments within a single fund. This is particularly valuable for investors who want diversified exposure without managing multiple funds. The fund manager can dynamically allocate between equity and equity-related instruments, debt instruments, and other asset classes based on market conditions.
Access to strategies like:
🔹 Sectoral bets
🔹 Long-short
🔹 Derivatives
🔹 Multi-asset plays
Access to Sophisticated Strategies
One of the most exciting aspects of SIFs is their ability to employ strategies that traditional mutual funds simply cannot. These investment strategies include:
SIFs offer three main investment strategy categories:
A) Equity-Oriented Investment Strategies:
- ▪️Equity Long-Short Fund: Minimum 80% in equity with maximum 25% short exposure through unhedged derivative positions
- ▪️Equity Ex-Top 100 Long-Short Fund: Minimum 65% investment in stocks outside the top 100 by market cap, with maximum 25% short exposure
- ▪️Sector Rotation Long-Short Fund: Minimum 80% investment in maximum 4 sectors with maximum 25% short exposure at the sector level
B) Debt-Oriented Investment Strategies:
- ▪️Debt Long-Short Fund: Exchange-traded debt derivatives that invest in a variety of debt securities with short exposure
- ▪️Sectoral Debt Long-Short Fund: Investment in debt instruments of at least two sectors, with a maximum 75% in a single sector, with a maximum of 25% short exposure
Related: Smart Debt Management Strategies to Regain Control of Your Finances
C) Hybrid Investment Strategies:
- ▪️Active Asset Allocator Long-Short Fund: Dynamic investment across equity, debt, derivatives, REITs/InvITs, and commodity derivatives
- ▪️Hybrid Long-Short Fund: The fund has a minimum of 25% equity and a maximum of 25% debt.
Important regulatory note: Only one investment strategy is permitted under each category to prevent excessive proliferation.
Source: SEBI Circular
Enhanced Flexibility and Reduced Redemption Pressure
SIFs offer weekly redemption (for hybrid SIFs), which provides better liquidity compared to AIFs or PMS. This subscription frequency and redemption frequency structure allows fund managers to focus on investment strategies without worrying about sudden redemption pressures that mutual funds often face.
Higher Transparency and Structured Reporting
Under SEBI guidelines, SIFs must provide regular reporting and transparency. Investors get detailed insights into portfolio holdings, strategy performance, and risk metrics. This level of regulatory oversight ensures that investor needs are protected while allowing for innovative investment strategies.
Portfolio Investment Guidelines and Restrictions
SIFs operate under specific portfolio investment restrictions designed to manage risk:
- ▪️ A single issuer’s AAA-rated debt instruments may account for up to 20% of NAV (16% for AA-rated and 12% for A-rated and lower).
- ▪️ A maximum of 25% of NAV can be invested in debt instruments from a particular industry.
- ▪️ SIFs can use derivative instruments to take on up to 25% of the net assets in permissible exchange-traded derivative instruments, specifically for purposes other than hedging and portfolio rebalancing.
Additionally, systematic investment options (SIP, SWP, STP) are allowed while maintaining the minimum threshold, with AMCs required to monitor compliance daily.
Factors To Consider Before Investing In SIFs
Before you get excited about SIFs, let me share some important considerations:
Eligibility Criteria and Investment Threshold
The minimum investment of ₹10 lakh means SIFs are designed for HNIs and institutional investors. You need to meet the eligibility criteria defined by SEBI, which typically includes having sufficient investment experience and risk appetite.
Risk Assessment
SIFs carry a higher risk compared to traditional mutual funds, with a five-level ‘Risk-band’ system depicting potential risks from lowest to highest. SIFs must include scenario analysis showing expected losses due to market movements. The flexibility that makes them attractive also means fund managers can take positions that might be more volatile. Your risk appetite needs to align with the investment strategies employed by the SIF.
Liquidity Considerations
While SIFs offer better liquidity than AIFs or PMS, they’re still not as liquid as mutual funds. The investment horizon for SIFs should typically be longer-term, and you should be prepared for potential liquidity constraints.
Portfolio Allocation
This is crucial: SIFs should not dominate your portfolio. As I always tell my clients, 70-80% of your investment needs will still be served by mutual funds. SIFs should be viewed as a complement to your core holdings, not a replacement. You may consider this as part of your wealth creation portfolio, but not for your basic goals like child education, retirement, etc.
Investment Strategies with SIFs: More Flexibility, More Design
The beauty of SIFs lies in their investment flexibility. Unlike mutual funds that follow rigid mandates, SIFs can be designed to capture specific market opportunities. Here are some strategies that SIFs can employ:
Active Asset Allocation
An active asset allocator long-short fund can dynamically shift between asset classes based on market conditions. This strategy is particularly valuable during volatile markets, when traditional investment approaches might fall short.
Sector-Specific Plays
SIFs can focus on specific sectors or themes that mutual funds cannot due to diversification requirements. This allows for more targeted exposure to growth opportunities.
Derivatives-Based Strategies
Although the maximum short exposure through unhedged derivative positions in equity is limited, it still provides opportunities for enhanced returns and risk management that traditional mutual funds cannot offer.
Investment Strategies with SIFs: More Freedom, More Design
Here’s where SIFs really shine compared to other investment avenues. Unlike AIFs or PMS where the investment manager decides everything, SIFs offer flexibility to customize your strategy design.
The 75-25 Approach
You could choose a debt-heavy SIF that maintains 75% in debt instruments and 25% in equity and equity-related instruments. This provides stability with some growth potential.
The 50-50 Hybrid Strategy
A balanced approach, where the fund manager can dynamically allocate between equity and debt based on market conditions. This hybrid investment strategy provides both growth and stability.
The Aggressive All-In Strategy
For investors with higher risk appetite, SIFs can focus primarily on equity with the flexibility to use derivatives and long-short strategies for enhanced returns.
The key advantage is that you, as an investor, have more say in the strategy design compared to AIFs or PMS, where the fund manager makes all strategic decisions.
Key Differences Between SIF, AIF, PMS, and Mutual Funds
Let me break down the key differences to help you understand where SIFs fit in the investment landscape:
| Feature | Mutual Funds | SIF | AIF | PMS |
|---|---|---|---|---|
| Minimum Investment | ₹500+ | ₹10 lakh | ₹25 lakh+ | ₹50 lakh+ |
| Regulatory Oversight | High | High | Medium | Low |
| Investment Flexibility | Low | High | Very High | Very High |
| Liquidity | Daily | Weekly | Limited | Limited |
| Transparency | High | High | Medium | Low |
| Strategy Customization | None | Moderate | High | Very High |
SIF vs AIF vs PMS – What Works Better in 2025?
As we move into 2025, the investment landscape is evolving rapidly. Here’s my perspective on what works better:
AIFs
AIFs have been around longer and have established track records. They’re suitable for investors who want exposure to alternative investment strategies and can commit larger amounts. However, they typically require a higher minimum investment and offer less liquidity.
PMS
Portfolio management services remain the gold standard for ultra-high-net-worth individuals who want completely customized investment strategies. The fund manager can tailor the portfolio to specific investor needs, but this comes at a premium.
SIF
SIFs offer the best of both worlds—investment flexibility with regulatory oversight, lower minimum investment threshold compared to PMS, and better liquidity than AIFs. They’re particularly attractive for investors who want to bridge the gap between mutual funds and PMS.
Is SIF for Everyone?
The short answer is no. Even though SIF offers exciting opportunities, they’re not suitable for every investor. Here’s my honest assessment:
Who Should Consider SIFs?
🔹 Sophisticated investors with years of experience managing their portfolios
🔹 HNIs who have already built a solid foundation with mutual funds
🔹 Investors with excess funds beyond their core portfolio
🔹 Those who understand and can tolerate higher risk for potentially higher returns
Who Should Stick to Traditional Options?
🔹 New investors who are still learning about markets
🔹 Those who cannot meet the ₹10 lakh minimum investment requirement
🔹 Investors who prefer simple, straightforward investment strategies
🔹 Anyone who hasn’t first built a solid foundation with mutual funds
Remember, 70%- 80% of your investment needs can still be taken care of by mutual funds. SIFs should only be considered if you have excess funds and want to take that additional risk for wealth creation.
The Importance of Financial Planning
As a fee-only financial advisor, I cannot stress enough how important structured financial planning is before considering any investment vehicle. SIFs, like any investment opportunity, should be part of a well-thought-out financial plan.
Before you consider SIFs, ensure you have:
🔹 Adequate emergency funds
🔹 Proper insurance coverage
🔹 Clear investment goals and timelines
🔹 A clear understanding of your risk appetite
🔹 A diversified portfolio of mutual funds
Financial planning isn’t just about picking the right investment products—it’s about creating a comprehensive strategy that aligns with your life goals and risk tolerance.
Conclusion
Specialized Investment Funds represent an interesting evolution in India’s investment landscape. They offer investors more flexibility than traditional mutual funds while maintaining the regulatory oversight that SEBI provides.
However, let’s be realistic: SIFs are not a magic solution. They’re a tool that, when used correctly as part of a broader financial plan, can add value to your portfolio. The key is to remember that 70-80% of your investment needs will still be served by mutual funds.
As the investment landscape continues to evolve, SIFs may become an important investment avenue for sophisticated investors. But like any investment decision, it should be made after carefully considering your financial goals, risk appetite, and overall portfolio strategy.
Remember, there’s no solicitation for the purchase of any specific investment product here. The decision to invest in SIFs should be based on your individual circumstances and preferably made in consultation with a qualified financial advisor.
The average AUM and performance of SIFs will become clearer as more funds are launched and gain operational experience. Until then, maintain a balanced perspective and remember that successful investing is more about systematic investment and financial planning than chasing the latest investment trends.
