SIFs: The latest mutual fund strategy from SEBI creating the buzz

We’ve been receiving a lot of questions about SIF ever since SEBI announced the framework for Specialized Investment Funds (SIFs) and the excitement and curiosity is understandable.

Over the last 2 decades, capital markets in India have seen enormous growth fuelled by the growing appetite of Indian investors for products directly linked to the markets, the most popular being Mutual Funds, PMS and AIFs.

While Mutual Funds have changed the investment landscape with a significant influx of retail investors and money over the last 2 decades, PMS and AIFs have remained exclusive owing to the Rs. 50 lakh and Rs. 1 crore minimum ticket sizes respectively, mandated by SEBI.

What has this caused ? A gap.

Sophisticated investors were looking for something beyond Mutual Funds without having to lock-in the Rs. 50 lakh with PMS. And although Mutual Funds offer regulated exposure across capital markets with different levels of associated risks that an investor can choose, SEBI has restricted the investment avenues and strategies that a Mutual Fund can employ.

SEBI identified this gap and is attempting to bridge this gap in a regulated manner through SIFs.

So today, let’s cover:

●       What are Specialized Investment Funds (SIFs) ?

●       Different SIF Investment Strategies - A Comparison

●       Mutual Funds vs SIFs vs PMS - How do they differ ?

●       Core Features & How do they benefit the investor ?

●       Should you invest in SIFs ?

●       How to invest in SIFs ?

What are Specialized Investment Funds (SIFs) ?

You can think of SIF as something that sits in-between traditional Mutual Funds and PMS/AIF. It comes with greater flexibility and nuanced strategies while still retaining the structure of a Mutual Fund. How, you ask ?

Let’s understand this in simple terms:

A traditional Mutual Fund can only buy stocks / bonds (take long positions) based on expected price increases. This means that when the market is falling as a whole, the pick of stocks/bonds together may cushion your portfolio’s fall but it cannot avoid it altogether.

SIFs can do both:

●       Buy stocks that they expect to go up in value (long position)

●       Sell stocks that they expect to go down in value (short position)

This allows greater freedom and flexibility to protect the portfolio and additionally even generate returns even during market downtrends.

SIFs allow more active risk management compared to traditional Mutual Funds and the potential to break-away from market cycles and generate returns.

Mutual Funds vs SIFs vs PMS - How do they differ ?

Different SIF Investment Strategies - A comparison

Core Features & How do they benefit the investor ?

1. Lower entry threshold: SIFs bring access to new strategies at a lower threshold (Rs. 10 lakhs) than PMS/AIFs (50L / 1cr)

   
   

2. Advanced strategies: Long-short strategies, thematic and hybrid models, structured debt, etc. - strategies not available with traditional Mutual Funds. This means potentially higher returns (with higher risk).

   
   

3. Regulated, hence safe: SIFs offer greater flexibility while still falling under the purview of SEBI, thereby ensuring transparency and investor protection

   
   

4. Remains tax-efficient: The tax benefits offered by traditional mutual funds are retained with SIFs

With all the above, this is a welcome introduction from SEBI – one that retains the clean, simple framework of a Mutual Fund but provides investors the access to sophisticated investment strategies.

Should you invest in SIFs ?

You’re probably wondering – all this sounds exciting but is this suited for me ?

We’re here to help you. Ask yourself if you fit the below profile:

●       Experienced investor with a core portfolio looking to diversify

●       Very comfortable with short-term volatility

●       Already investing in Mutual Funds or PMS/AIF and looking for tax-efficient strategies with lower entry threshold

If this sounds like you, then SIFs can be a great addition to your portfolio, bringing regulated flexibility and nuanced strategies at a comparatively lower entry threshold.

On the other hands, if this does not sound like you, i.e. maybe, you’re

●       Just getting started with investments - mutual funds / stocks

●       Looking for good returns with moderate to high risk with a long-term perspective

●       Exploring SIF as > 20-30% of your investment corpus

If this is you, then SIFs are not the right investment product for you at this stage.

The AssetPlus Take on SIFs

SIFs bring something that investors have been hoping and asking for a long time – more strategic flexibility, lower investment threshold while still having regulatory safety.

Now that it is finally here, should we dive in head-first ? A little caution may prove helpful.

A new product like SIF, with its nuances, demands many things from all parties involved – fund houses, wealth managers/distributors and investors including.

For SIFs to get seamlessly integrated into the industry in a clean, sustainable and investor-centric manner, the following need to happen:

●       Fund houses which are entering long-short strategies for the first time need to build faith by showing good performance.

●       Wealth Managers / Distributors who have sold simple, easy-to-understand products so far need to educate themselves on the product and use that to position the product to the customer keeping in mind their risk profile, goals, portfolio allocation and strategy, etc.

●       Investors need to be aware of and understand the risks that come with each SIF strategy and ask questions to obtain transparent information

So, the promise of SIFs has to be met with learning and awareness from all parties involved to ensure that there is no mis-selling and the product serves the intended purpose in the right manner for the right set of investors.

We at AssetPlus see strong potential and are monitoring this closely. We believe in SIFs being a part of a robust portfolio and we’re working towards that, one step at a time.

How to invest in SIFs ?

Reach out to us at nri@assetplus.io and leave your contact number. We will give you a callback and guide you to get started on your first SIF.

Alternatively, you can reach out to us on +91 75500 70513