SIF vs Mutual Funds: Which Is Better?

Can you compare SIFs with mutual funds? Which one is better?

- Mahesh Narvekar

Not yet. Specialised investment funds, or SIFs, don’t have a long track record. There are five kinds of SIFs, and they follow different strategies. SIFs are interesting, and we are watching them very closely. But none of them has yet built a track record or proven anything that would let us tell you with confidence to go for it.

Remember, too, that unlike mutual funds, where you can start an SIP with a few thousand rupees, an SIF needs a minimum investment of ₹10 lakh with a single fund house. So be a little careful. That’s a meaningful sum for most people.

Some SIFs do present an opportunity. The case for them is this: mutual funds can only bet on markets going up. If a mutual fund manager believes the market is overvalued and heading for a big fall, all the fund can do is hold some cash. SIFs can profit from a decline in a limited way, through some short selling. This wasn’t possible even in portfolio management services (PMS), only in alternative investment funds (AIFs). In SIFs, it comes with a lot of guardrails. For instance, unlike AIFs, they cannot borrow.

SIFs are also the most tax-efficient vehicle. Because they are structured like mutual funds, all the short-term gains and losses inside the fund are taxed as mutual fund gains, in line with how long you’ve held your units. That’s excellent.

Still, don’t treat SIFs as a proven alternative yet. We can’t evaluate them the usual way, by looking at their portfolios. We have to judge the fund manager’s instincts and skill at making money in rising and falling markets. We will soon have a way to do that. SIFs are an interesting option, and it’s worth waiting until we give our opinion on them.

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