What are Specialised Investment Funds? How to choose between SIF and MF?

Conventional mutual funds often feel a bit too restrictive, yet Portfolio Management Services (PMS) demand a steep entry ticket. If you have ever felt caught in this investing no-man's-land, the rules of the game have changed.

Introduced by SEBI in April 2025, Specialised Investment Funds (SIFs) bridge the exact gap between traditional MFs and high-end PMS. Operating with greater strategic freedom — such as long-short equity and dynamic sector rotation — they give savvy investors access to sophisticated tools once reserved for ultra-wealthy portfolios, all while retaining the trusted regulatory safety net of a mutual fund.

Are you planning to explore these hybrid strategies, or are you looking to weigh them against traditional options first? We have some insigts for you, but first things first.

What is an SIF?

An SIF is a SEBI-regulated investment vehicle that requires a minimum investment of Rs 10 lakh and gives fund managers the flexibility to use advanced strategies like long-short investing, derivatives, sector rotation, active asset allocation and certain derivative-based strategies.

Accredited investors are exempt from the Rs 10 lakh minimum investment. Investment in the AMC's ordinary MF schemes does not count towards the SIF threshold.

Also Read: SEBI proposes new MF-PMS framework: What does it mean for investors, portfolio managers?

SIFs are not restricted to HNIs. Retail investors can also invest if they meet the applicable requirements. However, the complexity of the strategies makes them more suitable for financially sophisticated investors who understand the associated risks.

The Rs 10 lakh threshold

The Rs 10 lakh requirement applies across all SIF strategies offered by the same AMC. If your holding falls below Rs 10 lakh because of a transaction initiated by you, such as redemption or transfer, the units are frozen for debit and you are given 30 calendar days to restore the investment to the required level. If you fail to do this, it could result in the redemption of the applicable units per rules.

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But, if the fall below Rs 10 lakh is caused solely by a decline in the NAV or market value, it is treated differently and is known as a passive breach. It's not something you need to address at your end.

SIFs offer facilities like SIP (Systematic Investment Plan), STP (Systematic Transfer Plan), and SWP (Systematic Withdrawal Plan), subject to the minimum investment slab and the AMC's terms and conditions.

What strategies can SIFs follow?

SEBI has permitted SIFs several categories of investments that could enhance your wealth.

Equity Long-Short: These funds can take both long and short positions. They must maintain at least 80 per cent of their assets in equity and equity-related instruments.

Equity Ex-Top 100 Long-Short: These strategies focus on companies outside the top 100 by market capitalisation while combining long and short positions.

Sector Rotation: The fund manager can dynamically shift exposure between sectors based on market conditions and relative opportunities.

Active Asset Allocation: The manager can change allocations between asset classes depending on market conditions, valuations, and risk.

Hybrid Long-Short: These combine equity and other asset classes with long-short investment approaches.

The investment limits vary according to the particular SIF strategy.

Derivatives and short exposure

The additional flexibility of SIFs does not mean unrestricted leverage. Think of it as a fund manager's leeway to bet on a stock falling in price without owning it first.

SIF managers can use SEBI-approved exchange-traded derivatives to take uncovered (unhedged) short positions worth up to 25% of the fund's total assets. Any derivatives used strictly to protect the portfolio (hedging) or rebalance holdings are counted separately and don't count toward this 25% limit.

This makes SIFs potentially more versatile than conventional MFs, but also exposes investors to risks that are less prominent in traditional long-only funds.

Who can launch SIFs?

SEBI has prescribed eligibility requirements for AMCs. Under the principal route, the MF must have operated for at least three years, have an average AUM (assets under management) of at least Rs 10,000 crore during the preceding three years, and satisfy the prescribed regulatory-compliance requirements.

Also Read: Choosing PMS over MF? Do it only if you’re rich and well-informed

SEBI has also provided an alternative route based on the experience and track record of the fund managers proposed to manage the SIF.

The objective is to ensure that SIFs are managed by organisations with adequate investment-management experience.

How many SIFs are there?

The SIF industry is still in its infancy. Right now, around 30 SIF investment strategies are live, with more in the pipeline.

Edelweiss, SBI Mutual Fund, ICICI Prudential Mutual Fund, Quant Mutual Fund, Tata Mutual Fund, ITI Mutual Fund, Bandhan Mutual Fund, and other AMCs have launched SIF strategies.

AUM is growing rapidly, but figures are changing as new schemes are launched and existing schemes attract additional investments. You should therefore check the latest AUM and scheme documents rather than rely on static rankings.

What about performance?

It is too early to judge the long-term performance of SIFs. Most strategies were launched only from late 2025 onwards, with several beginning operations during 2026.

Some have delivered encouraging initial returns, while others have produced more modest results. However, returns over a few months cannot establish long-term superiority.

Also Read: Have ₹50 lakh to spare? It may be time to consider a PMS investment

You should focus on the strategy, portfolio construction, use of derivatives, degree of short exposure, concentration, risk management, liquidity, and fund-manager experience rather than selecting an SIF merely because it has produced the highest return since inception.

Who should consider SIFs?

SIFs may be appropriate for investors with a moderate-to-high risk tolerance who understand derivatives, short positions, and active portfolio management.

They may also suit financially-sophisticated investors looking for strategies that are not normally available through conventional mutual funds.

Also Read: Capital markets becoming key avenue for household savings, wealth creation: SEBI chief

The Rs 10 lakh minimum investment should not, by itself, be regarded as evidence of financial sophistication. More important is whether the investor understands the product and can withstand the associated risks.

The appropriate investment horizon will vary according to the strategy. You should therefore study the scheme documents rather than assume that all SIFs require the same holding period.

Who may not find SIFs suitable?

SIFs may not be appropriate for:

• investors unable to meet the applicable minimum investment requirement

• investors unfamiliar with derivatives and short-selling

• those with a low tolerance for market volatility

• investors seeking simple, passive investment products

• investors who may require their money at short notice

• those selecting investments purely on the basis of recent returns

Retail investors are not prohibited from investing in SIFs. The key consideration is whether they understand the product, satisfy the applicable requirements, and are comfortable with its risks.

Taxation

Taxation of SIF investments is governed by the applicable provisions relating to MF investments under the Income Tax Act. The actual tax treatment depends on the nature and classification of the investment and the applicable tax rules at the time of redemption or transfer. You could ask your auditor or wealth manager for details.

The bottom line

SIFs represent an important development in India's mutual fund industry. They give investors access to sophisticated strategies traditionally associated more closely with PMS and other alternative investment approaches.

But greater flexibility does not mean lower risk or guaranteed higher returns.

Also Read: What Is the Closing Auction Session? NSE and BSE rules explained

The Rs 10 lakh minimum should not be the sole criterion for investing. The more important questions are: Do I understand the strategy? Can I tolerate the associated risks? How does the fund manager intend to generate returns? And am I comfortable with the liquidity and exit conditions?

SIFs could have a useful place in the portfolios of financially-sophisticated investors, but they should be viewed as specialised investment products — not simply as more advanced versions of conventional mutual funds.

This content is for information only, and does not constitute investment advice.