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In February, SEBI introduced a new product named Specialized Investment Funds (SIFs) to bridge the gap between traditional mutual funds and alternative investment funds (AIFs).
In its recent circular, the Indian market regulator has provided much-needed clarity on the structure, formats, and regulatory compliance requirements for SIFs.
This circular specifically focuses on the standardized application format, the Investment Strategy Information Document (ISID), and the disclosures that the fund houses need to make.
Key rules in SIFs as per the circular:
Registration Route
Mutual Funds can apply to establish SIFs via two routes:
Route 1: Sound Track Record
- Minimum 3 years of operations
- Average AUM of INR 10,000 crore over the last 3 years
- No adverse regulatory actions
Route 2: Alternate Route
- Appointment of a Chief Investment Officer with 10+ years' experience
- AUM of INR 5,000 crore
- Additional Fund Manager with 3+ years' experience and AUM of INR 500 crore
- Clean regulatory record
Application Form Requirements
- The application for establishing an SIF must include:
- Certificates from statutory auditors
- Bio-data and self-certified undertakings of key personnel
- Organizational structure and details of shared resources
ISID (Investment Strategy Information Document) will include:
- Front cover information like product label, PRC (Potential Risk Class) matrix, and benchmark risk band
- Highlights such as investment strategy name, objective, type, liquidity, subscription/redemption frequency, NAV disclosures, and load structure
- Asset allocation tables with detailed limits, including exposure to non-traditional instruments (e.g., derivatives, REITs, InVITs)
- Performance tracking, fund manager profiles, and benchmark justification
Investor Safeguards
- SEBI has introduced important protections for investors, including:
- A dedicated website/page for SIFs to distinguish them from regular mutual fund offerings
- Explicit risk warnings about volatility, potential capital loss, and liquidity constraints
- Permission for SIFs to offer special products like Systematic Investment Plans and Systematic Transfer Plans, with defined timelines and NFO notice periods
Other Regulatory Requirements
- Timely redemption payouts (minimum 3 working days, not exceeding 15)
- Disclosure of portfolio holdings, turnover ratios, and AMC investments
- Compliance with NAV computation, expense caps, and transparency norms
