SEBI Brings Regulatory Framework For Specialised Investment Funds

The Securities and Exchange Board of India on Thursday released a circular outlining the governing guardrails for a new investment product called the Specialised Investment Fund. This product is going to fall between mutual funds and portfolio management services.

The minimum investment required for an investor across all SIF strategies will be Rs 10 lakh, except for accredited investors, as per the circular.

A registered mutual fund can also start an SIF if it has been in action for at least three years and has an average asset under management of not less than Rs 10,000 crore, in the immediately preceding three years, the market regulator said. Additionally, no action should have been initiated against the fund’s asset management company or its sponsor during the last three years.

However, if these conditions are not fulfilled, an alternate route can be followed, where the AMC appoints a chief investment officer with at least 10 years of fund management experience and an additional fund manager with at least three years of experience, according to the circular. The AMC can share operational resources between its mutual fund business and the SIF, it added.

SEBI has mandated that an SIF must have a distinct brand name and logo separate from its parent mutual fund. However, for the first five years, the AMC may use the sponsor’s or mutual fund’s brand name in marketing materials. The AMC must also maintain a separate website or webpage dedicated exclusively to the SIF.

The framework permits a range of investment strategies under SIF, classified into equity-oriented, debt-oriented, and hybrid strategies. These include long-short funds, sectoral rotation strategies, and asset allocation models with short positions.

Each category will have only one investment strategy to prevent proliferation and AMCs will need to monitor compliance daily to ensure the investment threshold is maintained.

SEBI has also imposed restrictions on investments under SIF, including a maximum exposure limit to debt and money market securities from a single issuer and sector-based investment caps.

Additionally, investment strategies under SIF can take derivative exposures of up to 25% of net assets for purposes beyond hedging and rebalancing. The total exposure, including equity, debt, derivatives, and other instruments, must not exceed 100% of the net assets of an investment strategy.

SIFs will offer open-ended, close-ended, or interval investment strategies with flexible subscription and redemption frequencies to facilitate liquidity. However, close-ended and interval investment strategies will be mandatorily listed on stock exchanges.