SEBI Specialised Investment Funds (SIF): The ₹10 Lakh Asset Class Between Mutual Funds and PMS

Why SEBI Created a New Asset Class

For decades, Indian investors had a sharp cliff in the middle of the product landscape. On one side sat mutual funds — cheap, tightly regulated, daily-liquid, but constrained to long-only investing with hard concentration limits. On the other side sat Portfolio Management Services (PMS) at a ₹50 lakh minimum and Category III AIFs at ₹1 crore, where sophisticated strategies live but where costs, opacity and tax complexity rise steeply.

The gap in between was being filled by unregulated or semi-regulated arrangements — unauthorised "portfolio schemes", pooled trading accounts, and offshore look-alikes. SEBI's response was to build a legitimate middle rung: the Specialised Investment Fund (SIF), introduced through amendments to the SEBI (Mutual Funds) Regulations and operational from 1 April 2025.

An SIF is not a mutual fund scheme and not a PMS. It is a distinct offering that an eligible Asset Management Company may launch, with a minimum investment of ₹10 lakh per investor at PAN level across all SIF strategies of that AMC. Accredited Investors are exempt from this minimum. If your holding value falls below ₹10 lakh purely because of market movement, you are not forced to exit — but fresh subscriptions must respect the floor.

Who Is Allowed to Launch an SIF

SEBI deliberately restricted the field. An AMC can establish an SIF through one of two eligibility routes:

• •Track-record route: the mutual fund must have been in operation for a minimum period (three years) with average assets under management crossing a prescribed threshold of the order of ₹10,000 crore, and must have a clean regulatory record — no action under the relevant sections of the SEBI Act in the preceding three years.
• •Talent route: a newer AMC may qualify by appointing a Chief Investment Officer and an additional fund manager who satisfy SEBI's prescribed minimum years of fund-management experience and minimum AUM managed.

Either way, the AMC must maintain separate branding, a distinct name and logo, and a separate website or a clearly demarcated section for SIF products, with prescribed disclaimers so investors never confuse an SIF strategy with a plain mutual fund scheme. The trustee and custodian structure of the parent mutual fund continues to apply, which is precisely what gives SIFs their governance advantage over PMS.

The Seven Permitted Investment Strategies

SIFs cannot invent strategies freely. SEBI has specified the buckets within which they operate, and an AMC may launch only one strategy per sub-category:

The defining feature is the short leg. A mutual fund can use derivatives essentially for hedging and rebalancing. An SIF may take unhedged short exposure through exchange-traded derivatives up to 25% of net assets. That single permission changes the return profile: a long-short strategy can, in principle, make money when markets fall, and can reduce drawdowns during corrections.

SIFs also get moderately relaxed concentration limits compared to mutual funds — for example, higher permitted exposure to a single issuer's debt paper and a higher cap on holding a company's paid-up capital — but they are nowhere near the freedom of a Category III AIF. Investments in REITs and InvITs are permitted within specified caps, and investment in unlisted or illiquid securities remains restricted.

Liquidity, Pricing and the Risk-Band

This is where SIFs differ most sharply from mutual funds in daily experience.

• •Subscription and redemption frequency is flexible — daily, weekly, fortnightly, monthly, quarterly or annually, as disclosed in the offer document.
• •A notice period of up to 15 working days may be attached to redemptions, so an SIF is not an ATM.
• •Close-ended and interval SIF strategies may be listed on a stock exchange.
• •Instead of the familiar six-level Riskometer, SIF strategies carry a Risk-band with five levels (Band 1 to Band 5), reviewed and disclosed at least monthly. Band 1 is lowest risk; Band 5 the highest.

For an investor, that means an SIF should be treated as a 12-month-plus allocation, not as a parking vehicle. If you are likely to need the money for a property down-payment or a school fee cycle, this is the wrong wrapper.

Taxation: Read the Portfolio, Not the Label

SIF strategies are taxed exactly like mutual fund schemes, based on the underlying portfolio composition. Under the regime applicable after 23 July 2024:

The practical trap: a Hybrid Long-Short strategy that keeps average equity exposure below 65% will not qualify as equity-oriented, and a large-looking gain can be taxed at your slab rate. Before investing, read the scheme information document for the stated minimum equity allocation and ask the AMC in writing how the strategy will be characterised for tax. Do not assume the "long-short equity" name guarantees equity taxation.

SIF vs Mutual Fund vs PMS vs AIF Cat III

The structural advantage of SIFs over PMS is the trustee oversight, custodian, NAV discipline and unit-level taxation. The structural advantage over Category III AIFs is that taxation happens at your hands on redemption, rather than at the fund level at the highest marginal rate.

Who Should — and Should Not — Consider SIFs

An SIF makes sense only after the basics are in place. A reasonable readiness checklist:

1. Emergency corpus of 6–9 months of expenses already parked in liquid or low-duration instruments.

2. A core long-only portfolio of at least ₹40–50 lakh already built through diversified funds and index exposure — so that a ₹10 lakh SIF allocation is roughly 15–20% of the financial portfolio, not the whole of it.

3. Comfort with evaluating strategies rather than returns: for a long-short strategy, the questions are net exposure, gross exposure, drawdown behaviour and the source of the short-side alpha — not last year's headline number.

4. Willingness to sit through a full market cycle of three years or more.

Who should stay away: first-time equity investors, anyone whose ₹10 lakh represents a meaningful share of net worth, and anyone who cannot tolerate a strategy underperforming a rising Nifty for two consecutive years — which is exactly what a hedged book is expected to do in a strong bull market.

Costs, Reporting and Due Diligence

SIF expense ratios are governed under the mutual fund expense framework applicable to the category, so they are meaningfully lower than typical PMS fee structures of fixed plus performance fees. However, derivative usage adds implicit costs — roll costs on futures, option premia, and higher portfolio turnover — which show up in returns rather than in the TER line.

Before committing, insist on: the strategy's stated net and gross exposure ranges, the Risk-band and its history, the fund manager's mandate and prior experience, portfolio disclosure frequency, redemption notice period, exit load structure, and the tax characterisation in writing. Every SIF must publish scheme documents in SEBI's prescribed format — read the "where will the scheme invest" and "risk factors" sections in full, not the one-page pitch.

E-Square Tip: Treat an SIF allocation like a satellite, never a core. A workable rule is to cap total SIF exposure at 15–20% of your financial assets and to judge the strategy over a rolling three-year window on drawdown control, not on beating the index in an up-year — because if a long-short fund keeps pace with a roaring bull market, it probably is not hedging at all, and you are paying for protection you are not getting.