SIF New Regulation: Just Because You Have Rs 10 Lakh, You Shouldn't Jump In, Says Radhika Gupta

Investors often create a combination of investments spread across categories, themes and instruments to create their desired portfolio. The Securities and Exchange Board of India's new Specialised Investment Fund is another instrument for investors willing to take higher risks for potentially higher returns.

But Edelweiss' Radhika Gupta recommends that SIF should form a small part of one's investment, unless they have at least Rs 1 or 2 crore of liquid net worth.

The new instrument meets expectations as a product that is co-created by SEBI and AMFI, according to Gupta, the chief executive officer of Edelweiss Mutual Fund.

SIF is a combination of mutual funds and portfolio management services that calls for a minimum investment of Rs 10 lakh.

But, "Just because you have Rs 10 lakhs, you shouldn't jump into SIF. Even if you are going to start investing in SIFs, it needs to be a smaller part of your portfolio and not part of the core. You need to have a Rs 1 to 2 crore liquid net worth to invest a major part of your corpus into SIF," she said.

SIFs are lot more flexible, allowing fund managers to try new strategies investing in stocks, bonds, real estate, and private equity. Here, the asset allocation is not limited to equity and fixed income.

They offer advanced investment strategies like exposure to REITs, or derivatives like futures and options. With a wider investing universe, SIFs would not be the perfect pick for all investors.

This is access to manufacture a product, which could not be done before. There are two categories, multi asset and equity that are focused on in the long shot. In a typical equity fund, the use of derivatives are also limited, Gupta said. This has been enhanced meaningfully with the right intent.

"You've not allowed leverage, where exposure can't exceed 100%. So its somewhere between what you would be allowed to do on a mutual fund platform and an AIF platform, but all for the better and for flexibility," she noted.

There are usually two parts to category three AIFs; long oriented funds and long short funds.

"Don't think it interferes with long shot category, but challenges the long short category. The long-short options can now be offered on a mutual fund friendly format with a load entry ticket size which is Rs 10 lakh as I understand," she said. If structured right, it will also have better taxation which is the biggest delta, according to Gupta.

From the risk perspective, Gupta draws a very clear line.

SIFs are not a new, retail or small investor product given ticket size, she said. "So, I think an EMS or AIF investor or an investor looking to boost some hedging directly with F&O will find this product useful. Even a seasoned mutual fund investor. Fixed income and equity solutions are available, while this will give you something in between," she explained.

Highlighting that investors should think about volatility draw-down, Gupta said that not everyone can absorb a 30% equity market loss. Thus investors looking to step into this new product needs to ensure they are prepared and aware of the kind of investment they are making.