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For the last 7 years, we have celebrated March 31 as the financial advisor day to celebrate the vital role of mutual fund distributors (MFDs) in India’s financial inclusion movement. This financial year end will be extra special because it marks the start of a new chapter in India’s mutual fund industry and the start of a mega opportunity for MFDs.
SEBI’s regulations on Specialized Investment Funds (SIFs) comes into effect on April 1. Under this regime, existing mutual funds who have an AUM of at least 10,000 crore for the past 3 years or a specialized fund management team can launch SIFs. SIFs benefit from the same strong governance and transparency, professional fund management, taxation rules, KYC, statements and reporting as a mutual fund. They will be launched under a brand affiliated with the parent AMC and hence inspire trust in the retail investor. Hence, SIFs are a natural extension for an MFD looking to grow her business.
A SIF has a few key differences vs mutual funds. Investors must invest a minimum of 10 lakh per PAN with a single fund house hence this product is for the more affluent investor.
SIFs also have greater investment flexibility around portfolio concentration, not offering daily liquidity and the use of derivatives for shorting and hence they have risk factors that MFDs need to educate themselves and inform clients about. This knowledge based right-selling has become the calling card of MFDs/RIAs who are doing well in the industry today.
We believe that in the next 5 years, the industry AUM of SIFs can be 15 lakh crore industry and the revenue opportunity for MFDs can be approximately 1 billion dollars per year! So how should a MFD get started with SIFs?
The most important thing to remember is that SIFs will complement existing mutual fund categories! SIFs will largely deal with moderate return, low risk strategies like capital protected schemes, absolute return funds and arbitrage-plus offerings. This means that they are likely to appeal to investors who are already comfortable with balanced advantage funds and multi-asset funds.
SIFs will not replace someone’s emergency fund in a debt mutual fund or long-term wealth creation via a SIP in a small cap fund. As an extension of this, MFDs need to have reasonable return expectations from products and understand how SIFs can help an investor reach her financial goal.
Second, as with all new products – let AMCs and fund managers be tested over market cycles. AMCs with well-run hybrid schemes are a natural initial choice to partner with. SIFs are launching at a time when both debt and equity markets are once again volatile, so there is a strong investment case to look at NFO offerings that will hit the market in mid-2025. MFDs should start with small allocations to a few SIFs, let it grow with SIPs and top-up when both they and clients feel comfortable. Accredited investors can invest less than the Rs.10 lakh minimum, so if MFDs can help investors get accredited via CVL, it will help them sample more SIFs at a smaller size.
I’m excited for this new chapter of mutual fund distribution, and I can’t wait for the day when retail investors will acknowledge not just Mutual Funds Sahi Hai but SIFs Bhi Sahi Hai!
Nalin Moniz is the CEO of Ionic Asset Management. The views expressed in this article are those of the author and do not reflect the views of Cafemutual.
