On December 16, 2024, the Securities and Exchange Board of India (“SEBI”) notified the Securities and Exchange Board of India (Mutual Funds) (Third Amendment) Regulations, 2024 (“Amendment”) to introduce “Specialized Investment Funds” (“SIF”) as a new asset class under the SEBI (Mutual Funds) Regulations, 1996. Originally proposed in July 2024, the SIF framework reflects SEBI’s commitment to provide additional investment opportunities to investors who have sufficient understanding of financial products and the associated risks and returns, are capable of dealing with relatively riskier investments (“Accredited Investors”) and who meet the prescribed financial conditions for Accredited Investors.
Key Highlights of the Specialized Investment Fund
Definition and Scope
SIFs shall be a distinct category of mutual fund schemes designed to cater exclusively to Accredited Investors.
SIFs may have specialized investment strategies, including open-ended, close-ended, or interval schemes.
Minimum ticket size
Accredited Investors are eligible to participate in SIFs with no minimum ticket size. Non-Accredited Investors must invest a minimum of INR 10 lakh per scheme.
Investment Conditions
SIFs have broader investment latitude compared to traditional mutual funds, allowing investments in equities, debt instruments, derivatives, real estate, and alternative assets. They may also explore niche asset classes as permitted by SEBI, offering portfolio customization to its investors.
Investments in structured products and international securities are permissible, subject to regulatory caps and compliance with SEBI’s overarching investment guidelines for mutual funds. SIFs are authorized to invest in illiquid assets, provided these align with the mutual fund’s objectives and risk profile as disclosed in the offer documents.
SIFs cannot invest more than 10% (ten percent) of their assets under management (“AUM”) in a single entity and not more than 20% (twenty percent) of their AUM in debt instruments issued by a single issuer. The SIF’s exposure to unlisted securities must not exceed 30% (thirty percent) of the AUM and exposure to a single sector must be capped to 25% (twenty five percent) of the AUM.
ELP Comments
SIFs are meant to be positioned between mutual funds and portfolio management schemes (“PMS”). Until SIFs were introduced, the only options for non-accredited investors were mutual funds (no minimum ticket size), PMS which has a minimum ticket size of Rs 50 lakh and alternative investment funds which have a minimum investment threshold of INR 1 crore.
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