SEBI Introduces Specialised Investment Funds (SIF) for High-Risk Investors

The Securities and Exchange Board of India (SEBI) has revised its regulations to introduce a novel asset class called the Specialised Investment Fund (SIF), aimed at investors with a higher tolerance for risk. This new category bridges the gap between conventional mutual funds (MFs) and Portfolio Management Services (PMS), offering customized investment solutions.

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Originally proposed in July 2024, the SIF framework has now been formalized, signaling a significant shift in India’s investment offerings. This structure permits investments starting from ₹10 lakh, targeting high-net-worth individuals and sophisticated investors. However, accredited investors are exempt from this minimum threshold requirement.

The SIF framework allows for diverse investment strategies, which can be structured as open-ended, close-ended, or interval-based, with clear guidelines on subscription and redemption intervals detailed in the offer document. The fee structures for these funds will align with SEBI's Regulation 52, similar to those governing mutual funds.

To ensure high standards of professional management, SIF fund managers are required to hold certifications from the National Institute of Securities Markets (NISM).

Regarding investment restrictions, a SIF cannot allocate more than 20% of its Net Asset Value (NAV) to debt instruments issued by a single non-investment-grade issuer. However, investments in government securities, treasury bills, and triparty repos involving such securities are excluded from this limitation.

SIFs are also permitted to invest in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), with an ownership cap of 20% of the units issued by any single REIT or InvIT issuer. This cap includes the existing 10% restriction that applies to mutual fund schemes.

The introduction of SIFs is anticipated to create more opportunities for high-risk investors and encourage innovation within India’s financial sector, offering alternative strategies to traditional investment vehicles.

Furthermore, the SIF initiative aligns with SEBI's broader objectives of deepening India’s capital markets and encouraging greater participation from domestic and international investors. By providing a regulatory framework that accommodates sophisticated investment needs, SEBI aims to foster an environment conducive to long-term growth and stability.

The introduction of SIFs is also expected to enhance the competitiveness of Indian financial markets on a global scale. By providing a structured yet flexible investment option, SEBI hopes to position India as a hub for innovative financial products, drawing comparisons with international markets offering hedge funds and other alternative investment vehicles.

In conclusion, the SIF framework marks a pivotal step in reshaping India’s investment landscape. It not only caters to the evolving preferences of high-net-worth investors but also stimulates financial innovation, making it a significant milestone in SEBI’s regulatory journey. This development promises to broaden investment horizons and strengthen India’s position in the global financial arena.