The Securities and Exchange Board of India (“SEBI”) announced the establishment of ‘Specialized Investment Funds’ (“SIF”) vide its amendment to the SEBI (Mutual Funds) Regulations, 1996 (“Mutual Fund Regulations”), effective December 16, 2024. The amendment was aimed at introducing a new asset class to bridge the gap between Mutual Funds (“MFs”) and Portfolio Management Services (“PMS”). SEBI vide its circular dated February 27, 2025, laid down a comprehensive regulatory framework for SIFs (effective April 1, 2025).
SEBI had, in July 2024, proposed a new asset class (i.e., SIFs) to cater to investors seeking more flexibility than traditional lower risk mutual funds, while also avoiding the complexities of a PMS. Such investors would often get gravitate towards unregistered and unauthorised schemes or entities.
This blog aims to provide a set of Frequently Asked Questions (“FAQs”) that cover key aspects related to the setting up and features of SIFs. The reader is requested to peruse the MF Regulations and the SEBI Circular dated February 27, 2025, for an in-depth understanding of SIFs.
What is the eligibility criteria for setting up an SIF?
NISM Requirement
The SIF fund manager is mandated to have relevant NISM certification, as notified by the SEBI from time to time.
Eligibility Criteria
A Mutual Fund duly registered with the SEBI (under regulation 9 of MF Regulations) shall be eligible to establish an SIF, subject to meeting the eligibility criteria as specified by SEBI in this regard. There are two routes available to establish an SIF, namely (A) Sound track-record; or (B) Alternate route.
Sound track-record:
- Mutual Fund has been in operation for at least three years and has an average asset under management (“AUM”) of not less than INR 10,000 crore, in the immediately preceding three years.
- 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 three years.
Alternative route (for all newly registered as well as existing Mutual Funds, not fulfilling the requirements under the above-mentioned route):
- The asset management company has appointed:
- A Chief Investment Officer (‘CIO’) for the SIF with at least 10 years’ of fund management experience, and who has managed an average AUM of not less than INR 5,000 crore, and
- An additional Fund Manager for the SIF with experience of fund management of at least three years and has managed an average AUM of not less than INR 500 crore.
- No action has been initiated or taken against the sponsor/ asset management company under Section 11, 11B, and/ or Section 24 of the SEBI Act, 1992, during the last three years.
Will AMCs require different personnel and resources from that of the existing mutual funds?
No. AMCs may share resources for operations between their mutual funds and SIFs.
What is the minimum ticket size for investing in SIFs? Are there any restrictions on the type of target investors?
The minimum ticket size for investors to invest in SIFs (Lakhs across all investment strategies under SIFs) is INR 10 Lakh. Such requirement, however, shall not apply to accredited investors. Further, the following has also been specified by SEBI in this regard:
- The AMC shall ensure that 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’). Circular dated April 09, 2025, has clarified that this requirement shall not apply to mandatory investments made by AMCs for designated employees as per the SEBI Master Circular on Mutual Funds.
- 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 Mutual Funds’ schemes of the same AMC.
- 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.
Passive breaches (occurrence of instances not arising out of omission and commission by AMC), such as those caused by a decline in Net Asset Value (NAV), shall not be treated as a violation of the Minimum Investment Threshold. However, if the total investment value falls below the threshold due to a passive breach, the investor shall only be permitted to redeem the entire remaining investment amount from the SIF.
What are the restrictions on redemptions in investment strategies under the SIFs?
An investment strategy under SIF may be launched as an open-ended investment strategy or close-ended investment strategy or interval investment strategy (investment strategies with subscription and/ or redemption frequency other than daily), with subscription and redemption frequency appropriately disclosed in the offer document.
What are the investment strategies that can be launched by SIFs?
As per Regulation 49U(c) of the MF Regulations, ‘Investment Strategy’ means a scheme launched under SIF. The following strategies have been permitted by SEBI to be launched under SIF:
Equity Oriented Investment Strategies
| Sr. No. | Category of Investment Strategy | Characteristics of Investment strategy | Type of investment strategy (uniform description of investment strategy) | Minimum redemption frequency |
| 1. | 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. |
| 2. | Equity Ex-Top 100 Long-Short Fund | Minimum investment in equity and equity related instruments of stocks, excluding top 100 stocks by market capitalisation – 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. |
| 3. | 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. |
Debt Oriented Investment Strategies
| Sr. No. | Category of Investment Strategies | Characteristics of Investment strategy | Type of investment strategy (uniform description of scheme) | Minimum redemption frequency |
| 1. | 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 |
| 2. | 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 |
Hybrid Investment Strategies
| Sr. No. | Category of Investment Strategies | Characteristics of Investment strategy | Type of investment strategy (uniform description of scheme) | Minimum redemption frequency |
| 1. | 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 a week or any lesser redemption frequency as may be decided by AMC. |
| 2. | 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 a week or any lesser redemption frequency as may be decided by AMC. |
It is to be noted that only one investment strategy shall be permitted to be launched under each of the aforementioned categories.
Are there any restrictions on investments by SIFs?
In addition to the provisions stated under regulation 49AA of the MF Regulations, the SEBI Circular provides that an investment strategy under SIF shall not invest more than 20% of its net asset value (“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 the investment strategy, with prior approval of the trustees of MF and board of AMC.
Further, an investment strategy under SIF shall not invest more than 25% of its NAV in debt and money market securities of a particular sector.
Are investment strategies under SIFs allowed to invest in derivatives and undertake hedging?
SEBI Circular allows investment strategies under SIF to take exposure of up to a maximum of 25% of the net assets in permissible exchange traded derivative instruments, specifically for purposes other than hedging and portfolio rebalancing. To clarify, this will allow the SIF to take unhedged short exposure through derivative instruments (as permitted under sub-regulation (1) of Regulation 43 of MF Regulations) of up to 25% of net assets, in addition to derivative exposure undertaken for hedging and portfolio rebalancing purposes.
The method for calculation of exposure of the SIF in derivatives has been provided under the SEBI Circular.
What are the branding requirements of SIFs that are different from regular mutual funds?
While adhering to the branding and advertisement related requirements under the MF Regulations, AMCs are required to ensure that the SIF has a distinct brand name and distinct logo, separate from that of its regular Mutual Fund. Having said that, to facilitate the establishment and initial recognition of the SIF’s brand, the AMC may use the sponsor’s or mutual fund’s brand name in the offer documents, advertisements and promotional materials of the SIF for a period of five years from the date of SEBI’s approval for the launch of the SIF.
When referring to the sponsor’s or mutual fund’s brand name for SIF, the AMC shall use phrases such as “brought to you by,” “offered by,” or similar terms.
The font size of the sponsor’s or Mutual Fund’s brand name in all offer documents, marketing, and promotional materials will be required to be equal to or smaller than the font size of the SIF’s brand name. The AMC shall also maintain a separate website or dedicated webpage exclusively for the SIF, ensuring clear differentiation between the SIF’s offerings and the regular Mutual Fund offerings.
Can the AMC engage distributors for distribution of SIFs?
Yes, the AMC may engage mutual fund distributors to market and distribute SIFs, subject to such distributor having passed National Institute of Securities Markets (‘NISM’) Series-XIII: Common Derivatives Certification Examination.
What mandatory disclosures should be made in the offer documents of SIFs?
The following information should be disclosed in the offer documents to enable investors and unit holders to make an informed decision:
- Redemption and subscription frequency of the investment strategy.
- Notice period of the investment strategy, if any.
- Frequency of portfolio disclosure.
- Scenario analysis for derivative positions.
- Disclosures regarding investment in derivatives, along with the maximum limit on investment in derivatives for other than hedging and portfolio rebalancing exposure.
- Disclosure of liquidity risk management tools and its applicability.
