Beyond mutual funds: How specialised investment funds work and who they are meant for

Specialised Investment Funds (SIFs) are a new investment category under the mutual fund framework, introduced by market regulator Securities and Exchange Board of India (Sebi) in April last year. They are designed to bridge the gap between traditional mutual funds and portfolio management services (PMS) or alternative investment funds (AIFs) by offering sophisticated strategies within a regulated and transparent structure.

SIFs allow investors to access advanced strategies such as long–short investing, previously available only through AIFs. With a minimum investment of ₹10 lakh, the new category offers a regulated avenue to diversify beyond traditional mutual fund products. 

According to Aditya Agarwal, co-founder of wealth management platform Wealthy.in, SIFs retain the regulatory oversight and taxation advantages of mutual funds while offering greater flexibility in portfolio construction.  

He said SIFs are not meant to replace mutual funds but to cater to investors with specific time horizons where traditional equity or debt funds may not be suitable. “For a two-year horizon, a hybrid long-short SIF could potentially offer lower volatility than equity and better post-tax returns than traditional debt options,” he said. 

How SIFs differ from mutual funds and PMS 

Traditional mutual funds are designed for mass retail participation and therefore operate under tighter regulatory constraints, particularly around derivatives, short selling, and strategy flexibility. PMS and Category III AIFs, in contrast, offer broader strategic freedom but come with higher minimum investments, lower transparency and a different tax treatment. 

“SIFs effectively bridge this gap,” Agarwal said. “They combine mutual fund–like transparency, governance standards and taxation with the flexibility usually associated with PMS or AIF strategies.”  

Harsh Gahlaut, Co-founder and CEO of FinEdge, echoed this view, noting that SIFs allow tactical long-short strategies using derivatives. “Unlike mutual funds, which follow long-only strategies and maintain small cash buffers, SIFs can hedge risk or capitalise on market opportunities even during volatile or declining phases,” he said. 

From a tax perspective, Abhishek Khudania, Executive Director – Wealth at Client Associates, pointed out both mutual funds and SIFs operate through a pooled trust structure managed by an AMC. “The fund itself is not taxed on portfolio gains; investors pay capital gains tax only at the time of redemption. In a PMS, every transaction triggers a tax event in the investor’s demat account,” he said. 

Eligibility criteria for launching SIFs 

Only SEBI-registered mutual fund houses are permitted to launch SIFs, subject to strict eligibility norms. Under the ‘track record route’, an AMC must have at least three years of operations and an average assets under management (AUM) of ₹10,000 crore over the preceding three years, with no regulatory action under the Sebi Act. 

Alternatively, under the ‘alternate route’, an AMC can qualify by appointing a dedicated SIF chief investment officer with at least 10 years of fund management experience and an average managed AUM of ₹5,000 crore. This must be supported by another fund manager with at least three years’ experience and an average AUM of ₹500 crore. In both cases, the sponsor or AMC must have a clean regulatory record over the past three years. 

“These criteria ensure that only AMCs with proven stability and experienced leadership are allowed to offer SIFs,” Gahlaut said.  

Who can invest in SIFs? 

SIFs come with a minimum investment requirement of ₹10 lakh per investor (PAN level), making them suitable primarily for affluent and high-net-worth investors. Agarwal said early adopters are using SIFs as an asset-allocation layer for two- to three-year horizons to target better post-tax returns than fixed income. 

Gahlaut said SIFs are best suited for experienced investors who understand market dynamics and use them tactically as satellite investments. Khudania added that SIFs are designed for seasoned investors and institutions comfortable with higher risk, volatility and relatively lower liquidity compared with traditional mutual funds. 

Pros and cons of investing in SIFs 

One of the key advantages of SIFs is their potential to improve risk-adjusted returns, particularly in portfolios that may have become overly concentrated in equities during prolonged bull markets. As per Agarwal, SIFs are designed to manage risk more efficiently rather than maximise absolute returns. 

For specific time horizons of two to three years, certain SIF strategies, such as hybrid long-short, may offer lower volatility than pure equity, better tax efficiency than traditional debt, and more predictable outcomes. SIFs also provide diversification beyond the traditional equity-debt framework and can navigate sideways or uncertain markets through active positioning and derivatives. 

However, experts cautioned that SIFs come with higher complexity. “The use of derivatives, potential liquidity constraints and the limited performance history of SIFs mean they are not suitable for all investors,” Agarwal said. 

Gahlaut highlighted additional limitations, including less frequent redemption windows, notice periods of up to 15 working days, and the relatively high minimum investment threshold. “If the primary objective is long-term wealth creation, traditional mutual funds, and SIPs remain simpler and more proven tools,” he said. As SIFs are still a new category, investors are advised to carefully evaluate strategy clarity, risk controls, and the fund house’s experience before allocating capital.