SIFs: A Worthwhile Investment Option For HNIs?
Which is better if you are an HNI investor –Specialised Investment Funds or Mutual Funds? Here's all you need to know
The investment landscape has evolved over the last few years. Investors today have several options beyond stocks. These include mutual funds, portfolio management schemes (PMS), and alternate investment funds, each offering different investment strategies.
The capital market regulator recognised the varied risk profiles of investors — retail and non-retail — and introduced a framework for a new investment avenue called Specialised Investment Funds, or SIFs, in February 2025. The framework became effective on April 1, 2025.
This editorial explains what SIFs are, the risks involved, and the strategies to consider in current market conditions.
What Are SIFs?
A Specialised Investment Fund is a new investment vehicle designed to bridge the gap between mutual funds and portfolio management services.
The minimum investment amount for a mutual fund can be a few hundred rupees, while PMS investments start at Rs 50 lakh.
Because of this ticket size, most retail and HNI investors use mutual funds. PMS products are generally used by HNIs and ultra-HNIs due to the higher entry threshold.
SIFs bridge this gap. The minimum investment amount is Rs 10 lakh.
The threshold positions SIFs for relatively sophisticated investors who fall between retail investors and traditional HNIs.
Another distinguishing feature of SIFs is their investment mandate and strategies. Some SIFs focus on equities, others on debt, while some follow hybrid strategies combining equity and debt. These funds can be open-ended, closed-ended, or interval funds.
Investors should assess where SIFs deploy a dominant portion of their assets and understand the strategy pursued.
What Are the Investment Strategies Pursued?
The regulator has allowed equity-oriented SIFs to offer the following strategies:
Long-Short Strategy — The fund invests at least 80% in equity and equity-related instruments. Short exposure through unhedged equity derivatives is capped at 25%, allowing participation in both rising and falling markets.
Equity Ex-Top 100 Long-Short Strategy — At least 65% of assets are invested in equities excluding the top 100 stocks by market capitalisation. Short exposure of up to 25% is permitted through derivatives of non-large-cap stocks, aiming to capture inefficiencies beyond large-cap stocks.
Sector Rotation Long-Short Strategy — At least 80% of assets are invested in equities across a maximum of four sectors. Short exposure of up to 25% through derivatives is permitted across the same sectors, enabling tactical sector allocation.
Debt-oriented SIFs are permitted to run long-short debt strategies or sector-based long-short debt strategies. In sector-based strategies, investments must span at least two sectors, with a maximum of 75% exposure to a single sector. Short exposure through unhedged debt derivatives is capped at 25%.
For hybrid SIFs, the regulator permits the following strategies:
Active Asset Allocator Long-Short Strategy — Investments are made dynamically across equity, debt, derivatives, REITs, InvITs, and commodity derivatives. Short exposure of up to 25% is allowed in equity and debt through derivatives. The objective is dynamic portfolio management.
Hybrid Long-Short Strategy — At least 25% each is invested in equity and debt. Short exposure of up to 25% through unhedged derivatives is permitted across both asset classes, following a balanced allocation approach.
In the current environment marked by geopolitical and macroeconomic uncertainty, most asset management companies have launched SIFs focused on equity and hybrid long-short strategies, despite positive long-term prospects for India.
The Risk Involved Is High And Liquidity Restrictions
Equity-oriented SIFs carry high risk across strategies.
Hybrid long-short SIFs also involve high risk.
Most SIFs have not completed one year of operations. This limits the usefulness of performance-based evaluation. Even where early performance appears reasonable, it does not indicate future outcomes. SIF strategies have not yet experienced a full market cycle.
Incorrect assessment by fund management — whether related to asset selection, fundamentals, or long and short positioning — can impact performance.
Investment models and structured strategies can also fail.
SIFs are suited to aggressive investors who accept higher risk and have the capacity to manage volatility.
Liquidity is more restricted than in mutual funds. Closed-ended and interval funds involve predefined lock-in periods and fixed redemption windows.
Even in open-ended SIFs, liquidity depends on the nature of underlying assets. Asset management companies may impose a redemption notice period of up to 15 working days to manage cash flows and avoid forced asset sales during market stress.
Upon exit, SIFs are taxed in the same manner as mutual funds.
What Should You Do?
SIFs represent a regulatory step to offer advanced strategies to sophisticated investors.
Before selecting an SIF, investors should assess alignment with their risk profile, investment objectives, financial goals, and liquidity needs.
Even HNIs and ultra-HNIs with higher risk capacity should prioritise investment options with a demonstrated track record.
Complex strategies can be considered if they fall within an investor’s understanding and risk tolerance.
Investment decisions should focus on capital protection and long-term objectives.
Happy Investing!
The views expressed in this article are solely those of the author and do not necessarily reflect the opinion of NDTV Profit or its affiliates. Readers are advised to conduct their own research or consult a qualified professional before making any investment or business decisions. NDTV Profit does not guarantee the accuracy, completeness, or reliability of the information presented in this article.
