Since the inception of Indian capital market always shown a good characteristic of evolving itself. With the development of economy, taxation system, assets classes for investment, investors categories are also evolving.

Better cash in hand, increasing disposable income, increasing higher purchasing power of people, creates a necessity for capital market to evolve and create a new asset class for investment.

As investors are changing and evolving there was a gap created, between mutual fund, portfolio management service, and AIF (Alternate Investment Funds).

Where mutual fund are buyers for most of the time, PMS starts from minimum 50L investment, AIF providing hedging benefits for investors, there was a necessity for investors to bridge the gap and explore the benefits of all.

This need developed over the years came to SIF (Specialized Investment Funds) a new asset class for investors in Indian capital market.

Eligibility Criteria for Specialized Investment Fund (SIF):

A registered mutual fund may establish SIF, provided they meet the eligibility criteria under one of the following ways:

Method 1 – Track Record of AMC:

1. 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.
2. No action has been initiated or taken against the sponsor/asset management company (‘AMC’) under section 11, 11B, and/or Section 24 of the SEBI Act, 1992 during the last 3 years.

Method 2 – Alternate Route:

1. The AMC has appointed:
2. A Chief Investment Officer (CIO) for the SIF with an experience of fund management of at least 10 years and has managed an average AUM of not less than INR 5,000 crores.
3.  An additional Fund Manager for the SIF with experience of fund management of at least 3 years and has managed an average AUM of not less than INR 500 crores.
4. No action has been initiated or taken against the sponsor/AMC under section 11, 11B, and/or Section 24 of the SEBI Act, 1992 during the last 3 years.

Note – The AMC may share resources for operations across mutual funds and SIF. A registered Mutual Fund shall file an application for prior approval with SEBI for establishment of an SIF, in the manner as may be specified by SEBI.

Minimum Investment Threshold:

The SIF shall not accept from an investor an investment amount less than INR 10 lakh across all investment strategies in the manner as may be specified by the SEBI, provided that the requirement of minimum investment amount shall not apply to an accredited investor.

1. The AMC shall ensure that an aggregate investment by an investor across all investment strategies offered by the SIF, at the Permanent Account Number (PAN) level, is not less than INR 10 lakh (hereinafter referred to as the ‘Minimum Investment Threshold’).
2. 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.
3. 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, while ensuring compliance with the Minimum Investment Threshold.

Investment Strategy:

“Investment Strategy” means a scheme of mutual fund houses launched under the SIF. An investment strategy under the SIF shall be launched as an open-ended investment strategy or close-ended investment strategy or interval investment strategy with subscription and redemption frequency appropriately disclosed in the offer document. 

Provided that a Specialized Investment Fund may launch such investment strategies in the manner as may be specified by the Board from time to time

The following Investment Strategies are permitted to be launched under SIF:

1) Equity Oriented Investment Strategies:

Category of Investment Strategy	Characteristics of Investment Strategy	Type of Investment Strategy (uniform Description of investment strategy)	Minimum Redemption Frequency
Equity Long-Short Fund	Minimum investment in equity and equity related instruments – 80% and Maximum short exposure through unhedged derivative positions in equity and equity related instruments: 25%	An open ended/interval equity investment strategy investing in listed equity and equity related instruments including limited short exposure in equity through derivative instruments.	Daily or any lesser redemption frequency as may be decided by the AMC
Equity Ex Top 100 Long-Short Fund	Minimum investment in equity and equity related instruments of stocks excluding top 100 stocks by market capitalization – 65% Maximum short exposure through unhedged derivative positions in equity and equity related instruments of other than large cap stocks: 25%	An open ended/interval investment strategy investing in equity and equity related instruments including limited short exposure in equity through derivative instruments, of stocks other than large cap stocks.	Daily or any lesser redemption frequency as may be decided by the AMC
Sector Rotation Long-Short Fund	Minimum investment in equity and equity related instruments of maximum 4 sectors – 80% Maximum short exposure through unhedged derivative positions in equity and equity related instruments: 25%* *Short exposure shall apply at the sector level, covering all stocks within that sector held in the portfolio. For instance, if the fund takes a short position in the Auto sector, all Auto sector stocks in the portfolio must be held as short positions.	An open ended/interval investment strategy investing in equity and equity related instruments including limited short exposure in equity through derivative instruments, of maximum four sectors.	Daily or any lesser redemption frequency as may be decided by AMC

2) Debt Oriented Investment Strategies:

Category of Investment Strategy	Characteristics of Investment Strategy	Type of Investment Strategy (uniform Description of investment strategy)	Minimum Redemption Frequency
Debt Long Short Fund	Investment in debt instruments across duration, including unhedged short exposure through exchange traded debt derivative instruments.	Interval investment strategy investing in debt instruments including limited short exposure in debt instruments.	Once in a week or any lesser redemption frequency as may be decided by AMC
Sectoral Debt Long Short Fund	Investment in debt instruments of at least two sectors, with maximum investment of 75% in a single sector. Maximum short exposure through unhedged derivative positions in debt instruments: 25% Short exposure shall be across the sector, applicable for all the instruments of that particular sector held in the portfolio. Example: If the fund is short on Auto sector, then all debt instruments of the Auto sector, held in portfolio, shall be held as short positions.	Interval investment strategy investing in debt instruments including limited short position in debt instruments, of minimum two sectors.	Once in a week or any lesser redemption frequency as may be decided by AMC

3) Hybrid Investment Strategies:

Category of Investment Strategy	Characteristics of Investment Strategy	Type of Investment Strategy	Minimum Redemption Frequency
Active Asset Allocator Long-Short Fund	Dynamic investment across following asset classes: Equity, debt, equity and debt derivatives, REITs/InVITs and commodity derivatives. Maximum short exposure through unhedged derivative positions in equity and debt instruments: 25%	Interval investment strategy dynamically investing across equity, debt, equity and debt derivatives, REITs/InVITs and commodity derivatives, including limited short exposure on permitted instruments through derivatives.	Two Times in a week or any lesser redemption frequency as may be decided by AMC
Hybrid Long Short Fund	Minimum investment in equity and equity related instruments – 25% Minimum investment in debt instruments – 25% Maximum short exposure through unhedged derivative positions in equity and debt instruments: 25%	Interval investment strategy investing in equity and debt securities, including limited short exposure in equity and debt through derivatives.	Two Times in a week or any lesser redemption frequency as may be decided by AMC

What sets SIFs apart:

 Unlike regular mutual funds, SIFs give fund managers the freedom to go short on stocks. That’s a big deal. (More on what shorting means in the next section). In fact, SIFs can short up to 25% of their net portfolio using derivatives.

This brings them closer to the world of global hedge funds, which frequently bet on both winners and losers. But don’t confuse them with free-way investment vehicles. SIFs still operate under a tight regulatory restriction. For example, equity-oriented SIFs must invest at least 80% of their corpus in equity and equity-related instruments. So, while there is some freedom, SIF will be in tight scrutiny also.

What does ‘shorting’ mean?

However, before investing in SIF, it’s important to understand what shorting means. It’s essentially a way to profit from falling stock prices. Imagine a fund manager believes that the stock of XYZ, currently trading at Rs 1,000, is overpriced. The fund manager then “borrows” the stock from the lender and sells it at Rs 1,000. If the price later drops to Rs 800, the fund can buy it back at the lower price, return the shares to the lender and get the Rs 200 difference per share. This is shorting and generating profit.

But it is equally fraught with risk. Because if the stock rises instead of falling—say to Rs 1,200—the fund stands to lose Rs 200 instead. That’s why shorting can amplify both gains and losses, and why regulators typically keep it on a scrutiny.

What is a long-short strategy?

Certain Specialised Investment Funds will have a long-short investment strategy. What this means is that a fund can go long (invests) on fundamentally sound companies and short those it believes are overpriced or weak. In theory, this dual playbook lets fund managers generate alpha in both rising and falling markets. But here’s the catch: in bull markets, even bad companies rise. There are numerous cases globally where companies with questionable fundamentals have delivered strong returns, before the eventual reckoning. So, while shorting may sound like a good strategy, it’s hard to execute well.

Long-short strategies do have one merit, downside protection. Data from Hedge Fund Research shows that during rough patches, long-short hedge funds tend to fall less than the broader market. For example, in their worst months, these funds have declined over 2 per cent less than the S&P 500.

They also tend to be less volatile overall, indicating a smoother investment period for investors compared to traditional investing.

Subscription and redemption of units of Investment strategies:

The subscription and redemption frequency of investment strategy under SIF may be based on the nature of investments, including daily, weekly, fortnightly, monthly, quarterly, annually, fixed maturity, or other suitable intervals.

The SIF may decide on the appropriate frequency of subscription/ redemption to allow the fund managers to adequately manage liquidity of the fund without imposing undue constraints on the investors.

The subscription frequency and redemption frequency of an investment strategy may be distinct from each other.

Eg. An investment strategy may permit daily subscriptions, while offering weekly redemptions.

Notice Periods:

Based on the structure of the investment strategy and the liquidity risk associated with it, AMC may implement appropriate notice periods for redemption from the investment strategy of SIF, in the following manner

In case of notice period, the redeeming investor shall receive the value of units sold based on the fund’s NAV at the end of the notice period.

Maximum duration of notice period shall not exceed 15 working days.

Listing of units of investment strategies:

1. 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 recognized stock exchange(s).
2. Investment strategies with subscription and/or redemption frequency other than daily shall be classified as ‘Interval investment strategies’ for the purpose of SIF.

Benchmarking of Investment Strategies:

1. The investment strategies of SIF shall follow a single-tier benchmark structure. Provided that, AMC at its discretion may also provide a second-tier benchmark for investment strategies as applicable for schemes of Mutual Funds under para 1.9 of the Master Circular.
2. The AMC shall appropriately select any of broad market indices available, as a benchmark index depending on the investment objective and portfolio of the investment strategy.
3. The guiding principles for selection of benchmarks are as follows:
4. Equity oriented investment strategies shall be compared against a suitable broad market index such as BSE Sensex or NSE Nifty or BSE 100 or CIRISL 500 etc.
5. Debt oriented investment strategies shall be compared with a suitable broad market index that is a representative of the fund’s portfolio.
6. Hybrid investment strategies shall be compared with suitable broad market benchmarks wherever available.

Distribution of Specialized Investment Funds:

1. An entity engaged in sale and/or distribution of Mutual Fund products, shall also be eligible to offer products under the SIF, subject to such entity having passed National Institute of Securities Markets (‘NISM’) Series-XIII: Common Derivatives Certification Examination.
2. AMFI and the AMCs shall ensure compliance with the above requirement by their agents and distributors.

Risk Band:

Similar to Mutual Fund schemes, the potential risk associated with the investment strategies of the SIF shall be depicted through a pictorial risk meter, termed as “Risk-band”. The Risk-band shall have the following five levels of risks for investment strategies of SIF:
1. Risk band level 1 (Lowest risk)
2. Risk band level
3. Risk band level
4. Risk band level
5. Risk band level 5 (Highest Risk)

Based on the scheme characteristics, SIF shall assign risk level for schemes at the time of launch of New Fund Offer of the investment strategy. 

Any change in risk band shall be communicated by way of Notice cum Addendum and by way of an e-mail or SMS to unitholders of that particular investment strategy. 

Risk-band shall be evaluated on a monthly basis and SIF/AMCs shall disclose the risk-band for all their investment strategies on their respective websites and on the website of AMFI within 10 days from the close of each month. 

SIFs shall disclose the risk level of investment strategies as on March 31st of every year, along with the number of times the risk level has changed over the year, on their websites and AMFI website.

Conclusion:

Having been recently introduced, AMC yet to launch a SIF. Still, they mark a bold experiment in India’s fund landscape—offering downside protection, tactical flexibility, and access to sophisticated strategies.

You may expect fund houses to push these products hard. But just because they can go short doesn’t mean they’ll get it right. And just because it sounds smart doesn’t mean it beats the index.

If you’re unsure about where to invest, head over to ABHAY KM. Let us do the heavy lifting, so you can invest with confidence—and without the marketing noise.

References:

1. https://www.zerodhafundhouse.com/blog/specialized-investment-fund-sif-new-asset-class/
2. https://www.sebi.gov.in/legal/circulars/feb-2025/regulatory-framework-for-specialized-investment-funds-sif-_92299.html
3. https://www.valueresearchonline.com/stories/223724/specialised-investment-funds-sif-pros-cons/
4. https://www.sebi.gov.in/reports-and-statistics/reports/jul-2024/consultation-paper-on-introduction-of-new-asset-class-product-category_84789.html

Disclaimer – Please note that this article or document has been prepared on the basis of publicly available information and other sources believed to be reliable. The information contained in this article or document is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party in any manner. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article or document.