Specialized Investment Funds (SIFs): Full Guide to Structure, Tax, Benefits & Risks
Introduction
India’s financial markets are evolving quickly, giving investors more sophisticated choices. Traditional mutual funds (MFs) offer accessibility and regulation but are strategy-constrained. Portfolio Management Services (PMS) and Alternative Investment Funds (AIFs) provide greater flexibility but come with high minimums and complex taxation.
To bridge this gap, the Securities and Exchange Board of India (SEBI) introduced Specialized Investment Funds (SIFs) in February 2025 under the Mutual Funds Regulations. SIFs combine the transparency and tax simplicity of mutual funds with the flexibility of hedge-fund-style strategies, giving wealthy investors a mid-tier option.
What is a Specialized Investment Fund (SIF)?
Definition
A Specialized Investment Fund (SIF) is a SEBI-regulated scheme that allows mutual fund houses to run advanced strategies like equity long-short, debt long-short, hybrid, and thematic portfolios.
Why SEBI Introduced SIFs
- Fill the gap between regulated MFs and high-ticket AIFs/PMS.
- Provide HNIs with advanced strategies at lower thresholds.
- Ensure transparency and investor protection while expanding product variety.
Regulatory & Structural Framework
The official framework was issued via SEBI Circular SEBI/HO/IMD/IMD-I POD-1/P/CIR/2025/26 on February 27, 2025.
Eligibility
- Only SEBI-registered AMCs can launch SIFs.
- Route 1: AMC ≥ ₹10,000 crore average AUM in past 3 years, no regulatory violations.
- Route 2: If smaller AUM, must have:
- CIO with 10+ years’ experience (managed ₹5,000 crore AUM)
- Fund Manager with 3+ years’ experience (managed ₹500 crore AUM)
Minimum Investment
- ₹10 lakh per investor (PAN-level) across all SIF strategies under one AMC.
- Threshold maintenance rule: If holdings fall below ₹10 lakh (due to redemptions or market dips), full redemption may be required.
- Accredited investors are exempt.
Monitoring mechanism: In March 2025, SEBI laid down systems for AMCs and custodians to track compliance with the ₹10 lakh rule (via PAN mapping across strategies).
Types of Strategies
- Equity Long-Short: ≥80% in equities, unhedged derivatives capped at 25%.
- Debt / Hybrid / Thematic: Allowed under SEBI’s defined rules.
- Structures: Open-ended, Interval, or Closed-ended.
Derivatives & Leverage
- Derivatives allowed with strict exposure caps.
- Some strategies allow gross exposure > net assets (leverage).
Liquidity & Redemption
- Open-ended: Frequent redemptions.
- Interval: Redemption only in fixed windows.
- Closed-ended: Mandatory exchange listing to give investors exit options (though liquidity on exchanges may vary).
Branding
- Must be clearly distinguished from regular mutual funds in marketing and naming.
Taxation of SIFs
SIFs follow mutual fund taxation rules. This makes them more predictable than AIFs/PMS.
Investor-Level Tax
- SIFs are not taxed at the fund level. Gains taxed only in investors’ hands.
Tax Rules
- Equity-oriented SIFs: LTCG @ 12.5% (holding >12 months), STCG same as equity MFs.
- Debt/Other strategies: LTCG @ 12.5% (>24 months); otherwise taxed at slab rate.
- Other assets (Edelweiss MF doc): For categories beyond equity/debt (e.g., commodities), LTCG @ 12.5% after 24 months.
Tax Example Illustration
Suppose:
- You invest ₹10 lakh in an equity long-short SIF and ₹10 lakh in an AIF Cat III (long-short).
- Both deliver 15% gross returns.
Outcome after 1 year:
- SIF: Taxed like MF → STCG @ 15% → net return ~12.75%.
- AIF: Taxed as business income → full return taxed at marginal rate (say 30%) → net return ~10.5%.
Result: SIF more tax-efficient for most investors.
Advantages of SIFs
- Greater flexibility (long-short, hybrid, thematic).
- Lower entry barrier (₹10 lakh vs PMS ₹50 lakh vs AIF ₹1 crore).
- MF-like taxation (simpler than AIF/PMS).
- Regulated under MF norms (disclosure, audits, transparency).
Risks & Fine Print
- Market/Strategy Risk – Leverage and derivatives can amplify losses.
- Liquidity Risk – Interval and closed-ended schemes limit redemption.
- Threshold Risk – Falling below ₹10 lakh may force full redemption.
- Fee Drag – Performance-linked or higher management fees can eat returns.
Example: If SIF charges 1.5% base fee + 10% performance fee, an 8% gross return could shrink to ~6% net after fees + costs.
- Benchmarking Issues – Non-standard strategies may lack proper benchmarks.
- Investor Understanding – Complexity could lead to mis-selling or misunderstanding.
Recent Developments (2025)
- SEBI Circular: Issued Feb 27, 2025.
- Quant Mutual Fund: India’s first SIF (Aug 2025).
- Bandhan AMC: Approved for “Arudha SIF.”
- Mirae Asset: Launched Platinum SIF brand.
- Compliance monitoring: SEBI framework for ₹10 lakh rule enforcement (March 2025).
Comparison Matrix: MF vs PMS vs AIF vs SIF
A) Structure & Entry
| Dimension | MFs | PMS | AIFs | SIFs |
|---|---|---|---|---|
|
Who can launch
|
AMCs |
PMS entities
|
AIF managers
|
AMCs (SEBI-registered)
|
|
Minimum |
₹500-₹5000
|
₹50 lakh |
₹1 crore
|
₹10 lakh
|
|
Threshold rule
|
N/A
|
N/A
|
Depends |
Forced redemption <₹10 lakh
|
|
Branding
|
Fund family
|
PMS mandate |
Scheme-level
|
Distinct branding
|
B) Strategy & Risk
| Dimension | MFs | PMS | AIFs | SIFs |
|---|---|---|---|---|
|
Scope
|
Diversified
|
High
|
Very High
|
Medium-High
|
|
Derivatives
|
Limited
|
Allowed
|
Allowed
|
Allowed (25% unhedged cap equity)
|
|
Leverage
|
Limited
|
Possible
|
Common
|
Permitted under SEBI
|
|
Benchmarking |
Clear |
Custom |
Custom |
Non-standard, disclosed
|
C) Liquidity
| Dimension | MFs | PMS | AIFs | SIFs |
|---|---|---|---|---|
|
Types |
Open/Closed
|
Custom |
Close-ended mostly
|
Open/Interval/
Closed
|
|
Redemption |
Daily (open-ended)
|
Mandate-specific
|
Lock-In
|
Depends (interval, listing)
|
|
Exchange listing
|
Closed-ended
|
N/A
|
Rare |
Mandatory for closed-ended
|
D) Tax & Fees
| Dimension | MFs | PMS | AIFs | SIFs |
|---|---|---|---|---|
|
Tax Locus
|
Investor-level
|
Investor-level
|
Pass-through
|
MF-like
|
|
Equity LTCG
|
12.5% (>12M)
|
As Sold
|
Varies
|
12.5% (>12M)
|
|
Debt LTCG
|
12.5% (>24M)
|
As Sold
|
Varies |
12.5% (>24M)
|
|
Fees |
Low TER (capped)
|
Higher |
High (carry/perf fees)
|
Moderate-High
|
Challenges Ahead
- No track record yet (new product).
- Fees may vary widely.
- Liquidity risk in non-open-ended schemes.
- Investor awareness is critical to avoid mis-selling.
- Regulatory monitoring will decide long-term credibility.
Who Should Invest?
SIFs suit:
- HNIs/accredited investors with ≥ ₹10 lakh.
- Investors seeking flexibility + MF taxation.
- Those comfortable with risk + lower liquidity.
Not ideal for:
- Small retail investors.
- Risk-averse or liquidity-focused investors.
FAQs
- What’s the minimum investment?
₹10 lakh across all SIF strategies under one AMC. - How are SIFs taxed?
Like mutual funds (equity LTCG @12.5%, debt LTCG @12.5% after 24M). - Who can launch SIFs?
Only SEBI-registered AMCs with experience/AUM criteria. - How do SIFs differ from MFs?
They allow long-short, derivatives, hybrid strategies. - What are the risks?
Higher volatility, liquidity limits, fees, benchmark ambiguity. - Are SIFs for retail investors?
No, they’re for HNIs and accredited investors.
Conclusion
Specialized Investment Funds (SIFs) are a landmark innovation by SEBI, giving India’s investors a regulated, mid-tier alternative between mutual funds and AIFs.
They offer:
- Flexibility (long-short, hybrid, thematic).
- Accessibility (₹10 lakh entry vs ₹50 lakh/₹1 crore for PMS/AIFs).
- Simplicity (MF-like taxation).
But they come with caveats: higher risk, complex strategies, liquidity limits, and higher fees.
For sophisticated investors, SIFs could be the smartest ₹10 lakh allocation in 2025. For conservative or small retail investors, traditional mutual funds remain safer.
