SEBI reveals SIF investment strategies

The investment strategies for Specialized Investment Funds (SIFs), which aims to combine the features of mutual funds and Portfolio Management Services (PMS), got more clarity on Thursday, as the Securities and Exchange Board of India (SEBI) unveiled a new set of framework for the new investment option.

The Association of Mutual Funds in India (AMFI) has been tasked with issuing standard guidelines by March 31, 2025.

Investment strategies

Currently, SIF has approved the launch of seven broad investment strategies across equity, debt and hybrid sectors.

The equity segment includes three strategies:

• Equity long-short fund: Here, the minimum equity exposure would be 80 per cent and maximum short exposure through unhedged derivative positions in equity would be 25 per cent.
  
• The second strategy is the Equity Ex-Top 100 Long-Short Fund. The minimum equity exposure of stocks excluding the top 100 stocks by market capitalisation would be 65 per cent, and the maximum short exposure through unhedged derivative positions in equity apart from large-cap stocks would be 25 per cent.
  
• The third one is the Sector Rotation Long-Short Fund, where the minimum investment in equity instruments would be 80 per cent across a maximum of four sectors.

The debt segment has two strategies: the long-short fund and the sector long-short fund.

The hybrid market will have two strategies, too: active asset allocator long-short funds and hybrid long-short funds.

Such strategies shall not invest more than 20 per cent of its NAV in debt and money market securities issued by a single issuer and rated AAA or 16 per cent in securities rated AA or 12 per cent in securities rated A and below. These instrument limits may be extended by up to 5 per cent of the NAV of the investment strategy with prior approval of trustees of the Mutual Fund and board of the AMC.

They may take exposure of up to 25 per cent of the net assets in permissible exchange-traded derivative instruments, specifically for purposes apart from hedging and portfolio rebalancing.

Investment benchmarks
Equity-oriented investment strategies shall be compared against a suitable broad market index such as BSE Sensex, NSE Nifty, BSE 100, CRISL 500, etc. While the debt-oriented and hybrid investment strategies shall be compared with a suitable broad market index that is representative of the fund's portfolio.

Only one investment strategy shall be allowed to be launched under each category to prevent the spread of too many strategies and in keeping with how mutual fund schemes are categorised.

Who can start SIF?

A registered mutual fund shall file an application for prior approval with SEBI for the establishment of an SIF.

There are two routes in which mutual funds can start SIF provided they meet under any one route.

Under the first route, mutual funds must have a minimum three-year operational track record and an average AUM of at least Rs 10,000 crore over the last three years.

The second route is called an alternate route, where the chief investment officer (CIO) for the SIF should have fund management experience of at least 10 years and to have managed an average AUM of not less than Rs 5,000 crore. This method also requires an additional fund manager with three years of experience and an average AUM of not less than Rs 500 crore. SEBI also stated that the asset management company (AMC) may share resources for operations across mutual funds and SIF.

Investment process

• An investor's total investment across all investment strategies should not be less than Rs 10 lakh.
  
• The AMC may offer systematic investment options such as Systematic Investment Plan (SIP), Systematic Withdrawal Plan (SWP) and Systematic Transfer Plan (STP) for investment strategies launched under the SIF.
  
• As mentioned earlier, SEBI has clarified that investors in Specialised Investment Funds (SIFs) must maintain a minimum investment of Rs 10 lakh. If an investor withdraws (redeems) a portion of their investment and the total falls below this limit, they won't be allowed to keep the remaining amount. They must withdraw everything. However, if the investment falls below Rs 10 lakh due to market fluctuations (because of a decline in NAV), it won't be considered a violation. In this case, the investor can stay invested, but if they wish to redeem, they must withdraw the full amount.
  
• The subscription and redemption frequency of an investment strategy under SIF may be based on the nature of the investments. Investors may be allowed to subscribe or redeem daily, weekly, fortnightly, monthly, quarterly, annually, or at fixed maturity periods, based on the fund's structure. To provide an exit option for the redeeming investors, the units of all close-ended and interval investment strategies of SIF shall be mandatorily listed on recognised stock exchanges.
  
• Apart from that, the market regulator has also stated that SIFs shall be depicted through a risk bank similar to mutual fund schemes. The SIFs shall disclose the portfolios on the last day of every alternate month, and the distributor engaged in the distribution of mutual fund products shall also be eligible to offer products under the SIF. But they should also pass the National Institute of Securities Markets ('NISM') Series-XIII: Common Derivatives Certification Examination.

Other announcement by SEBI

In another announcement on Thursday, SEBI launched 'Bond Central', a centralised database portal for corporate bonds. This platform aims to create a single, authentic source of information on corporate bonds issued in India. Investors can view corporate bonds across exchanges and issuers; one can also compare prices between two different debt securities.

SEBI also issued a circular stating that asset management companies (AMCs) shall deploy the funds garnered from the new fund offer (NFO) within 30 business days from the date of the allotment of units. If the AMC is unable to deploy the funds in 30 business days, it needs to give its reasons in writing to the Investment Committee of the AMC.

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