What are Specialised Investment Funds and how will they impact investors?

Markets regulator Sebi has received the first two applications for a specialised investment fund (SIF) from fund houses and is likely to approve them in 10 days, paving the way for the launch of these new schemes for investors.

WHAT IS A SPECIALISED INVESTMENT FUND?

An SIF is a new investment product introduced by the regulator. Over the years a gap was felt between mutual funds and portfolio management schemes (PMS). While PMS products are flexible, their ticket size is high. Mutual funds enjoy lower flexibility and cater to investors looking to put in as little as Rs 100 with no upper limit.

To bridge this gap, the Sebi (Mutual Funds) Regulations, 1996 has been amended to introduce the broad regulatory framework for this new product. The final operational guidelines for these products are expected soon. Fund houses have started preparing and hiring staffers for launch of this product and getting their backend ready.

WHAT IS THE INVESTMENT SIZE FOR AN SIF? HOW IS IT DIFFERENT FROM PMS AND AIF?
The minimum amount to be invested in a SIF will be `10 lakh per investor. The fund house can offer a systematic investment plan (SIP) and systematic withdrawal plan (SWP) but it must comply with the minimum threshold amount. The SIF can be open-ended, close-ended, or interval-based. In comparison PMS requires `50 lakh, while an alternative investment fund (AIF) has a minimum ticket size of `1 crore. The redemption process may include a notice period of up to 15 working days, allowing fund managers to manage liquidity effectively. In comparison a mutual fund can be redeemed in 2-3 working days.

WHO CAN SET UP AN SIF?
The regulator has outlined two routes to establish an SIF. As per the first rule, a fund house must be in operations for a minimum of 3 years with an average assets under management (AUM) of Rs 10,000 crore in the preceding three years. The alternate route is that the fund house must appoint a chief investment officer (CIO) with at least 10 years of experience managing an average AUM of Rs 5,000 crore or more. The fund house must also have an additional fund manager and must have at least three years of experience managing assets under management of Rs 500 crore.

WHAT KIND OF INVESTMENT STRATEGIES WILL AN SIF OFFER?

The regulator allows SIFs to offer three categories of investment strategies: the first is ‘equity-oriented strategies’ such as equity long-short funds, equity ex-top 100 longshort funds and sector rotation funds. The second is ‘debt-oriented strategies’ where fund houses can offer debt long-short funds and sectoral debt funds. In the third hybrid category, the fund house can offer active asset allocator long-short funds and hybrid long-short funds. The current framework allows only one strategy per category per SIF