What are SIFs?
SEBI has recently introduced a new asset class called Specialized Investment Fund (SIF). SIFs are a product class that has more flexibility than a mutual fund scheme and lower ticket size than PMS and AIFs.
The minimum investment amount for investors in SIF is Rs. 10 lakh. This asset class will have TER structure like mutual funds and will be subjected to single issuer limits.
What kind of products will be there in SIFs?
To start with, SEBI has allowed fund houses to launch long-short equity funds under the new SIF framework.
Long-short funds is the oldest and most common hedge fund strategy. Similar to Category III AIFs, the long-short equity funds can take two positions – long (buying) and short (selling) simultaneously. For instance, if a fund manager is bullish on the IT sector and bearish on the banking sector, he can invest in the IT sector by shorting stocks from the banking sector.
Simply put, long-short funds take a long position in undervalued stocks while selling short overpriced shares. By doing this the fund manager makes money irrespective of market movements. These funds are similar to hedge fund lite, which is available in US markets for retail investors.
What are the types of SIFs?
| Asset class | SIFs | Characteristics | Taxation | Redemption frequency |
| Equity | Equity Long -Short Fund | At least 80% in equity and up to 25% in unhedged derivative position in equity | Equity | Daily |
| Equity Ex-Top 100 Long-Short Fund | At least 65% in stocks beyond top 100 companies and up to 25% in unhedged derivative position in equity | Equity | Daily | |
| Sector Rotation Long-Short Fund | At least 80% in shares of up to 4 sectors and up to 25% in unhedged derivative position in equity | Equity | Daily | |
| Debt | Debt Long-Short Fund | Invest in debt securities across duration including unhedged short exposure through debt derivatives | Debt | Once in a week |
| Sectoral Debt Long-Short Fund | Invest in debt securities of at least two sectors with up to 75% in single sector and up to 25% in unhedged short exposure through debt derivatives | Debt | Once in a week | |
| Hybrid | Active Asset Allocator Long-Short Fund | Invest in equity, debt, equity and debt derivatives, REITs/InvITs and commodity derivatives and upto 25% in unhedged derivative position in equity and debt instruments | Depending on product structure | Twice in a week |
| Hybrid Long-Short Fund | Invest 25% each in equity, debt and equity and debt derivatives | Depending on product structure | Twice in a week |
Notes:
AMCs can launch only one scheme per category
Redemption frequency can be reduced depending on the AMCs’ policy
How to understand the concept of minimum investment amount?
The minimum investment limit of Rs.10 lakh is at the AMC level. For instance, if an AMC has 7 schemes across SIF categories, investors may choose to invest Rs.1.43 lakh in each scheme.
However, if an investor chooses to invest in only one SIF, she has to put the entire Rs.10 lakh in one scheme.
Please note that the minimum investment limit will be calculated at the AMC level. If an investor wants to invest in two SIFs of different fund houses, the applicable limit for each fund house will be Rs.10 lakh.
These limits will not be applicable for accredited investors.
Further, fund houses will allow switch transactions like SIPs, STPs and SWPs only after a minimum investment limit of Rs.10 lakh. For instance, if an investor invests Rs.3.50 lakh across three SIFs of an AMC, they can do SIPs in all three SIFs as the aggregate investment amount crosses the threshold limit of Rs.10 lakh.
How will redemption happen if the minimum threshold limit is Rs.10 lakh?
AMCs will have to ensure that the minimum investment threshold of Rs.10 lakh should be maintained throughout the investment cycle of investors. While active breach will not be allowed i.e. amount going down below Rs.10 lakh due to partial redemptions, passive breach due to market movement is allowed.
However, investors can redeem their investment based on the redemption frequency cycle of an AMC in full if their investment amount is less than Rs.10 lakh.
Further, SEBI asked AMFI to develop a 5-risk band level in SIFs with risk level 1 considered as lowest risk and risk level 5 as highest risk.
Disclaimer, “Investments in Specialized Investment Fund involves relatively higher risk including potential loss of capital, liquidity risk and market volatility. Please read all investment strategy related documents carefully before making the investment decision.”
