Learn Everything About Specialised Investment Funds (SIFs)

Specialised Investment Funds, or SIFs are shaping up to be one of India’s most forward‑looking investment vehicles. Designed for seasoned and high‑net‑worth investors, these funds bridge the gap between relatively accessible and familiar mutual funds and Portfolio Management Services (PMS) which are accessible only to investors with high net-worth. 

SIFs offer access to niche strategies such as startup exposures, real estate themes, private equity, and derivatives without requiring massive capital, yet under the umbrella of SEBI regulation. 

In this guide, we will learn what SIFs are, how they function, and important features and advantages. We will also help you assess whether this investment option aligns with your goals and risk appetite.

What Are Specialised Investment Funds (SIFs)?

A Specialised Investment Fund is a SEBI-regulated investment vehicle designed for investors seeking professionally managed exposure to high-growth or niche market opportunities. Notably, SIFs come with a minimum investment threshold of ₹10 lakh per investor. 

So how do SIFs differ from mutual funds? Unlike mutual funds, SIFs offer greater latitude in strategy and asset allocation. They are not constrained by rigid product mandates. Thus, fund managers can pursue high-conviction allocations, be it equity in startups, infrastructure assets, or real estate. They can also apply derivatives-based hedging and arbitrage trading techniques to enhance the performance of SIFs. 

Essentially, SIFs give individuals the strategic flexibility of PMS but with much lower capital entry points and better SEBI oversight.

Additional Read: https://www.mstock.com/articles/what-are-mutual-funds 

Sample Themes and Use Cases

SIFs are typically based on specific themes and use cases, which accordingly define their strategy:

• Emerging tech and startups SIF: Invests in a curated basket of promising Indian tech startups via private placements or secondary routes. High risk, potentially high return.
• Sectoral real estate SIF: Targets REITs, securitized real estate assets, and infrastructure trusts, providing indirect real estate exposure in a regulated structure.
• Corporate credit arbitrage SIF: Exploits credit dislocations across rated and unrated bonds, deploying strategies across instruments, arbitrage and derivatives.
• Long‑short equity strategy SIF: Combines long positions in undervalued companies with short positions or derivatives for hedging, seeking absolute return irrespective of market direction.

Key Features of SIFs

Specialised Investment Funds (SIFs) offer a mix of innovation, flexibility, and built-in safeguards to balance risk and opportunity. These features set them apart from traditional mutual funds and make them particularly attractive to investors seeking access to niche strategies without the high entry barriers of portfolio management services. 

Below are some of their distinguishing features.

#1. Minimum Investment Requirement

One of the defining characteristics of SIFs is the minimum investment threshold of ₹10 lakh per investor, as defined at the Permanent Account Number (PAN) level. 

This amount can be spread across multiple SIF strategies offered by a single Asset Management Company (AMC). 

This higher entry point ensures that the product targets investors who are both financially capable and experienced enough to handle the associated risks.

#2. Equity Allocation Mandate

For SIFs that are classified as equity-oriented, SEBI mandates that at least 80% of the total assets must be invested in equity instruments or equity-related securities. 

This ensures that funds classified under equity SIFs truly reflect the intended exposure to growth-oriented assets. It also provides clarity to investors about the nature and risk level of their investment.

#3. Investment Caps On Single Securities

To avoid excessive concentration in a single stock or issuer, SIFs are allowed to invest up to 15% of their Net Asset Value (NAV) in any one equity security. 

This is notably higher than the 10% limit applicable to traditional mutual funds, offering fund managers more flexibility, especially when targeting emerging businesses or under-researched sectors. 

However, this cap still maintains a healthy level of diversification to manage risk.

Additional Read: What is NAV in Mutual Funds? Meaning, Formula & Calculation

#4. Debt Exposure Flexibility

SIFs that follow debt-oriented strategies can invest up to 20% in debt instruments issued by one entity. With the prior approval of the trustees or the fund’s board, this can be extended up to 25%. 

This offers fund managers greater leeway in constructing credit strategies or participating in structured deals, while still placing a boundary to protect investors from overexposure to a single entity.

#5. Real Estate And Infrastructure Exposure

SIFs are permitted to allocate up to 20% of their net asset value to REITs (Real Estate Investment Trusts) and InvITs (Infrastructure Investment Trusts), which are instruments that offer indirect exposure to real estate and infrastructure projects. 

However, to manage issuer-specific risks, the fund cannot invest more than 10% in REITs or InvITs from a single issuer. This provides SIFs a way to diversify into real assets while maintaining a level of safety.

#6. Use Of Derivatives

SIFs are allowed to use derivatives for hedging or strategy execution, but they need to follow strict regulatory limits. The fund’s total exposure to derivatives is capped at 100% of its net assets. 

This rule ensures that while fund managers have tools for managing risk and enhancing returns, they cannot use leverage in an excessive or speculative manner that would compromise the portfolio’s safety.

#7. Higher Degree Of Transparency

SEBI has introduced explicit guidelines that require SIFs to maintain transparency in both structure and communication. This includes mandating clear differentiation from mutual funds in terms of branding and disclosures. 

SIFs must provide detailed reports on asset allocation, sectoral exposure, concentration limits, and any use of complex instruments like derivatives. Exit terms and risk levels must also be clearly communicated to investors.

How Do SIFs Work?

Here are the key steps involved in the operation of, and investment in SIFs.

1. Strategy design and onboarding: An AMC proposing a SIF files its offering documents detailing the fund’s theme (for instance, startup equity, SME spectrum, real estate, infrastructure, credit arbitrage, or long-short equity). Investors subscribe with the minimum capital, and the fund opens for amounts accordingly.
2. Fund management and allocation: Fund managers have discretion to invest across multiple domains. They pick assets aligned with the stated theme, and may invest in private placements, unlisted companies, structured credit, or listed derivatives. Asset allocation is dynamic, and may change based on valuation, liquidity, and risk metrics, within the permitted exposure limits.
3. Risk and compliance oversight: Trustees ensure SIFs comply with concentration ceilings, credit exposure norms, and derivative limits. SEBI-mandated checks include periodic disclosures of portfolio concentration, sectoral allocation, exposure levels, and performance attribution. 
4. Liquidity and exit: Depending on whether the SIF is open‑ended or closed‑ended, investors get redemption or exit windows as specified. Lock‑in periods may apply, especially where underlying assets are illiquid, like private equity or REIT holdings.

Benefits Of Investing In SIFs

Because of the greater degree of freedom available to fund managers, SIFs can offer unique advantages to investors. Here are some of them:

• Targeted access to specialized domains: They help you gain professionally managed exposure to niche areas that remain inaccessible through standard mutual funds or retail equities.
• Flexibility in allocation and strategy: Fund managers can deploy flexible strategies including long/short equity, options, structured placements, credit trades, or early-stage equity purchases, all within a regulated framework.
  Lower entry barriers than PMS: Unlike PMS (which may require ₹50 lakh or more), SIFs allow entry at ₹10 lakh. This democratizes access to institutional-grade strategies at a reasonable scale.
• Potential for bigger returns: Thematic and niche allocations may generate alpha beyond traditional diversified equity or debt portfolios, assuming the strategy is successful.
• Regulatory safeguards: SEBI mandates exposure limits, differentiation from mutual funds, and ongoing disclosures, thus delivering both innovation and investor protection.
• Diversification possibilities: An investor can allocate across multiple SIFs with varied themes. For instance, they may invest in one SIF for private credit, and another for REITs, and yet another for early-stage tech. This allows greater portfolio diversity beyond equity and debt.

Who Should Consider SIFs?

SIFs are best suited for:

• High-net-worth individuals (HNIs) with a capital of ₹10 lakh or more, and the ability to tolerate moderate-to-high risk.
• Experienced investors who are familiar with markets and comfortable navigating niche asset classes and focused strategies.
• Portfolio managers and entities seeking to build targeted strategies beyond standard fund mandates.
• Investors looking for diversification and innovation by investing in specialized domains or alternative asset types for long-term portfolio value.

However, SIFs are not ideal for beginners, retail investors who prefer simplicity and liquidity, or those seeking guaranteed capital or low volatility exposure.

Key Considerations Before Investing In SIFs

Here are some key aspects to weigh before you commit your funds to an SIF:

• Illiquidity: Many SIF strategies include unlisted equity, private credit, or fixed assets that may have infrequent exit windows.
• Complexity: These funds may employ derivatives, structured deals, or long-short equity approaches. Understanding the strategy is essential.
• Operational transparency: Review fund documentation carefully, especially regarding fees, lock-in periods, redemption policy, and risk factors.
• Tax implications: SIFs are typically treated in the same way as other mutual funds when it comes to taxation. STCG tax of 20% and LTCG tax at 12.5% will apply on the profits realized when you sell your investments. 
• Exit planning: Know the redemption mechanism, lock-in period, and resale route if required. Illiquid securities may limit your ability to exit quickly.

Conclusion

Specialised Investment Funds are injecting fresh impetus in India’s investment landscape by offering high-conviction, theme‑based strategies under regulatory guardrails. With a modest entry point, SIFs empower seasoned investors to access niche asset classes that were previously in the domain of private equity or PMS. 

However, they require a strong understanding of markets, an appetite for complexity, and acceptance of lower liquidity. If these align with your investment temperament and goals, SIFs can meaningfully add alpha and differentiation to your portfolio.

Additional Read: Different Types of Systematic Investment Plans and Their Benefits