SEBI releases a regulatory framework for Specialized Investment Funds

Pursuant to the Securities and Exchange Board of India (Mutual Funds) (Third Amendment) Regulations, 2024 dated December 16, 2024 which introduced “Specialized Investment Funds” (“SIF”) as a new asset class under the SEBI (Mutual Funds) Regulations, 1996, the Securities and Exchange Board of India (“SEBI”) has issued a circular dated February 27, 2025 (“SEBI Circular”) which provides a comprehensive regulatory framework for SIFs (“SIF Regulatory Framework”). Some of the key features of the SIF Regulatory Framework are as follows:

• A registered mutual fund may establish an SIF, provided it meets either of the following eligibility criteria:
• The mutual fund has been in operation for a minimum period of 3 years and has an average asset under management (‘AUM’) of not less than INR 10,000 crores, in immediately preceding 3 years; or
• The SIF has (i) a Chief Investment Officer (‘CIO’) with at least 10 years’ experience in fund management, having managed an average AUM of not less than INR 5,000 crores, and (ii) an additional Fund Manager with fund management experience of at least 3 years, having managed an average AUM of not less than INR 500 crores.
• The mutual fund’s asset management company (“AMC”) shall ensure that the SIF has distinct identification, separate from that of the mutual fund, to maintain clear differentiation between the offerings of the SIF and that of a mutual fund.
• The SIF Regulatory Framework has provided a list of permitted investment strategies, of which there are three equity-oriented investment strategies, and two each are debt oriented and hybrid investment strategies. An AMC may launch one investment strategy under each of the aforementioned three categories.
• As provided for in the SEBI Circular, the minimum investment is ten lakh rupees, but this amount may be divided across all investment strategies. The Minimum Investment Threshold of INR 10 lakh shall apply exclusively to investments under SIF and shall not include investments made by the investor in regular MF schemes of the same AMC. Further, the requirement of minimum investment amount does not apply to an accredited investor.
• An SIF investment strategy shall not invest more than 20% of its NAV in debt and money market securities issued by a single issuer and rated AAA or 16% in securities rated AA or 12% in securities rated A and below. These instrument limits may be extended by up to 5% of the NAV of investment strategy with prior approval of the trustees of the mutual fund and the board of the AMC. Further, an SIF investment strategy shall not invest more than 25% of its NAV in debt and money market securities of a particular sector.
• The SEBI Circular shall come into force with effect from April 1, 2025. SEBI has directed AMFI to issue necessary guidelines/standards as required under the SEBI Circular by March 31, 2025.

SEBI introduced SIFs because it believes that it is necessary to provide a middle-ground between mutual funds and PMS. SIFs are expected to offer portfolio flexibility while ensuring regulatory compliance and investor protection

The SEBI Circular can be found here.

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Vinod Joseph, Partner – Email – vinodjoseph@elp-in.com