There’sa huge buzz being created with the launch of SIF (Specialised Investment Fund) in the last few weeks by a couple of AMC (Asset Management Companies). With more in slew, it’s time to understand it better for productive investment choices. While AIF (Alternate Investment Funds) are way above for ordinary investors; the investment arena is constrained by the lack of choices between the PMS (Portfolio Management Services) and MF (Mutual Fund) options. Usually, HNI and Ultra HNI (High Networth Individuals) avail these avenues as the minimum investment criteria is Rs. 1Cr or above.

Also, these are offered in various categories where the liquidity is restrained with longer redemption or maturity periods. The strategies include beyond the traditional avenues through investing in unlisted securities, long-short, derivatives, startups, infrastructure projects, etc. Thus, are not suitable for retail or ordinary investors. To an extent, the PMS offerings address a relatively wider group, with a minimum investment requirement of Rs. 50L. These are curated portfolios following a particular defined strategies executed on behalf of the investor. The liquidity in these is relatively better with higher transparency compared to MF.

MFs are seen as plain vanilla offering despite a bit of innovative introduction of smart-beta products. The investment could begin as low as Rs100 and the next bigger layer is only PMS. But, if we bridge the gap between MF and PMS with lower threshold criteria while bringing many of the advantages to the board, the answer is SIF. The beauty of SIFs is the way they’re structured. They’re in MF form i.e., pooled investments allocating units per the proportion of contribution with a minimum ticket size of Rs. 10L. This allows the taxation at the fund level during the operation just like that of the MFs while only at the redemption would the investor be taxed depending on the type and tenure per the CG (Capital Gains) rules.

The regulator also has come up with the permitted investment strategies to be launched under the SIF. Broadly, SEBI has classified three investment strategies based on the asset class, viz., equity oriented, debt oriented and hybrid. In all three the categorization of the strategies includes long-short fund i.e., equity long-short, debt long-short, etc. In both the equity and debt options, another common strategy is thorough sectoral long-short. And distinctively for equity-oriented investments a category of equity ex-top 100 long-short fund and for hybrid asset allocator long-short fund options are allowed, for now.

SIF may be offered in a close-ended, open-ended and/or interval with subscription and redemption frequency appropriately disclosed. The minimum redemption frequency for any of the equity strategies is daily or lesser while for the debt strategies, it’s once a week or lesser and for the hybrid it’s two times a week or lesser. Unlike the MF, to avoid any proliferation of SIF offerings, only one product from each of the category is allowed for each AMC. Also, the minimum investment threshold shouldn’t fall below the norm due to redemptions by the investor. Of course, the valuation of the investment could go below the threshold due to the NAV (Net Asset Value).

Moreover, while MFs in specific schemes use derivatives, it is predominantly used for hedging purposes but SIFs could use them as an investment strategy, up to 25 per cent of the portfolio, to generate returns to the investors. In debt-oriented SIFs, they have greater flexibility in credit exposure matching the needs of an aggressive investor. While these tend towards a higher risk, enough risk management is done through restrictions on proportion of risk (25 per cent in derivative exposure and 20 per cent in a single debt issuer) SIF shall invest not more than 20 per cent of its NAV in debt and money market securities issued by a single issuer of AAA rating or 16 per cent of AA rated issuer or 12 per cent of A or below rated issuer.

(The author is a partner with “Wealocity Analytics”, a SEBI registered Research Analyst and could be reached at [email protected])