Sebi rolls out Specialised Investment Fund for HNIs with Rs 10 lakh minimum

Market regulator Securities and Exchange Board of India (Sebi) on Tuesday notified a new asset class between portfolio management services (PMS) and mutual funds and has called it the 'Specialized Investment Fund' (SIF). The SIF asset class will accept investments of Rs 10 lakh or more across all investment strategies.

 

This newly launched class aims to fill the space between mutual funds and PMS, offering a flexible and specialized option for investors who are willing to make riskier bets and seek higher returns. But why is this necessary? What gap does it fill, and why should investors take notice?

 

 

Why the Need for SIFs?

For many  ambitious investors, mutual funds and PMS have long been the go-to investment options. Mutual funds have provided a more hands-off, diversified way to invest, while PMS has catered to those willing to invest larger sums with personalized strategies. However, there has always been a gap between the two. 

 

The minimum investment threshold of Rs 10 lakh ensures that these funds remain focused on high-net-worth individuals (HNIs) or accredited investors who have the financial capacity and expertise to manage such investments. These investors are looking for higher returns and are comfortable with more volatile asset classes.

 

"SEBI's newly introduced Specified Investment Fund (SIF) marks a significant evolution in India's investment landscape, offering enhanced flexibility for portfolio managers and broader opportunities for high-net-worth individuals (HNIs) and experienced investors. With a minimum investment ceiling of Rs 10 lakh, SIFs allow asset managers to allocate up to 15% in a single security—significantly higher than the 10% limit under traditional mutual fund schemes. For fixed income strategies, exposures can now extend to 20% in a single issuer, with the possibility of increasing this to 25% through board approvals," said Santosh Joseph, Co-founder and CEO of Germinate Investor Services.

 

Mutual funds, by nature, attract a wide range of investors and are governed by strict regulations to ensure broad accessibility and safety. They are more suitable for conservative investors or those with a lower risk appetite. On the flip side, PMS offers tailored strategies but typically requires a significant minimum investment—often too large for smaller investors, and with a complexity that may seem daunting for those without deep financial expertise.

 

This is where the SIF comes in.

 

SIFs are designed for those who are more informed about the market, willing to take on a higher level of risk for the potential of higher rewards. With a minimum investment of Rs 10 lakh (though accredited investors can invest lower amounts), the SIF bridges the gap between the mass-market mutual funds and the high-end, personalized portfolio management services.

 

The Mechanics of SIFs

The introduction of SIFs presents a more nuanced approach to asset management. For one, these funds offer a higher degree of flexibility compared to mutual funds. They allow for a wider range of investment strategies, from equity to debt, and everything in between. However, there are some restrictions in place to ensure that these funds don't go too far off the rails.

 

Debt Instruments: The exposure to a single issuer is capped at 20% of the total assets, with some flexibility (up to 25%) allowed with approval from the trustees and board of directors. This restriction is intended to limit risk, ensuring that the fund remains diversified and not overly exposed to any one entity. 

"No SIF can allocate more than 20 per cent of its net asset value (NAV) to debt instruments issued by a single issuer, which are not rated below the investment grade. However, the 20 per cent rule doesn't apply if the strategy invests in government securities and treasury bills. This limit can also be extended to 25 per cent with prior approval from the Board of Trustees and the asset management company's Board of Directors," said Chirag Madia of Value Research.

   

Equity: For equity investments, the cap on single-company exposure is set at 10% of the total assets. However, the ownership limit for a company has been raised to 15%—a notable advantage for SIFs over traditional mutual funds, which could allow for more substantial positions in high-growth companies. "SIFs can't invest more than 15 per cent of the company's paid-up capital with voting rights. And neither can they invest more than 10 per cent of its NAV in equity shares of any company," added Madia.

 

REITs and InvITs: SIFs can allocate up to 20% of their assets to Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), but they cannot invest more than 10% in any single issuer. This provides a level of diversification while still allowing for targeted exposure to real estate and infrastructure sectors.

 

While these flexibility points may sound attractive, they come with their own set of risks. SEBI mandates that AMCs (Asset Management Companies) offering SIFs must have strong internal controls, risk management systems, and the right expertise to ensure the funds are managed responsibly. This is to prevent any overexposure or mismanagement that could undermine the performance of the fund. 

Sebi has further directed asset management companies (mutual fund houses) to clearly distinguish SIFs from mutual funds through branding, advertising, disclaimer guidelines and by maintaining separate websites for the two investment options.