SEBI issues regulatory framework for specialized investment funds

SEBI on Thursday announced a new regulatory framework for Specialized Investment Funds (SIFs) requiring a minimum investment of Rs 10 lakh across all strategies.

The new framework will be applicable from April 1. The SIF has been introduced to bridge the gap between mutual funds and portfolio management services in terms of portfolio flexibility. Under the framework, investors are required to invest at least Rs 10 lakh across all SIF strategies. This rule does not apply to accredited investors. Investors can use SIP, SWP, and STP, but total investments must remain above Rs 10 lakh.

If the investment value falls below this threshold due to market decline, the investor can only redeem the full remaining amount. Investors cannot invest more than 20 per cent (AAA-rated), 16 per cent (AA-rated), or 12 per cent (A-rated and below) in one company’s debt securities.

Further, they cannot invest more than 25 per cent of net asset value (NAV) in any single sector. With regards to eligibility, SEBI said that a registered mutual fund can establish an SIF if it meets the eligibility criteria through one of the two routes.

The Route 1 requires the mutual fund to have been in operation for at least three years with an average Asset Under Management of at least Rs 10,000 crore over the last three years.

Additionally, there should be no action taken or initiated against the sponsor or AMC in the past three years. The alternate route requires the AMC to appoint a Chief Investment Officer (CIO) for the SIF, who has at least 10 years of fund management experience and has managed an average AUM of at least Rs 5,000 crore.

It must also appoint an additional Fund Manager with at least three years of fund management experience and an average AUM of at least Rs 500 crore.  Similar to Route 1, no action should have been initiated or taken against the sponsor or AMC in the last three years. The AMC is allowed to share operational resources between the mutual fund and SIF.

Additionally, a registered mutual fund must apply for SEBI’s prior approval before establishing an SIF. SIFs can take up to 25 per cent exposure in derivatives for purposes other than hedging. Further, offsetting of derivative positions on the same security is allowed in certain cases.