Specialized Investment Funds (SIFs):

The world of investment in India has evolved significantly over the years. Investors traditionally had to choose between Mutual Funds (MFs) and Portfolio Management Services (PMS). Mutual Funds are known for diversification, simplicity, and suitability for retail investors, while PMS is tailored for High Net Worth Individuals (HNIs) with customized strategies and larger ticket sizes. However, there was no structured investment option that could bridge the gap between these two. To address this, Specialized Investment Funds (SIFs) were introduced in India around 2023–24. These funds are designed for sophisticated investors — those who want more flexibility and specialized strategies than MFs, but don’t fall into the ultra-rich category required for PMS. SEBI created this structure after realizing that while retail investors were well-served by Mutual Funds and HNIs by PMS, a large category of mid-to-high-level investors were left without an appropriate option. SIFs now fill this gap by combining the discipline and compliance of Mutual Funds with the flexibility and customization of PMS.

Specialized Investment Funds (SIFs) are innovative vehicles designed to cater to sophisticated investors. They function as alternative investment structures that provide more flexibility than Mutual Funds while maintaining better regulatory oversight compared to PMS. These funds allow investors to access thematic, sectoral, or customized strategies, enabling a balance between standardized compliance and tailored investment opportunities.

• Flexibility: Can invest across multiple asset classes (equity, debt, alternatives, global).

• Customization: Allow thematic or sector-based strategies (e.g., technology, ESG).

• Transparency: More standardized and regulated than PMS.

• Professional Management: Managed by expert fund managers with compliance checks.

• Accessibility: Designed for investors who want more than Mutual Funds but less exclusivity than PMS.

Benefits to Investors

Specialized Investment Funds (SIFs) are innovative vehicles designed to cater to sophisticated investors. They function as alternative investment structures that provide more flexibility than Mutual Funds while maintaining better regulatory oversight compared to PMS. These funds allow investors to access thematic, sectoral, or customized strategies, enabling a balance between standardized compliance and tailored investment opportunities.

• Enhanced Returns

• Risk Management

• Long-Term Wealth Creation

Benefits to the Market

The benefits of a well-functioning market extend beyond individual investors to the broader economy. These benefits include:

• Efficient Allocation of Capital

• Economic Growth

• Market Stability

• Improved Corporate Governance

Examples of SIFs Available in the Market:

Specialized Investment Funds are now offered across a variety of themes. Examples include ESG or sustainability-focused funds, sector-specific strategies such as technology, healthcare and infrastructure, global theme funds providing exposure to overseas markets, and real estate or infrastructure-linked vehicles such as REIT- and InvIT-based SIFs.

Compared with traditional mutual funds, SIFs usually have a different fee structure. Fund management fees typically range from 1–2% of assets under management. Many funds also charge a performance or “carry” fee of 10–20% on profits above a hurdle rate, plus small administration and custodian charges disclosed upfront.

SIFs are designed to deliver returns higher than comparable mutual funds because of their specialised strategies. Historically, some SIFs have aimed for 2–4 percentage points more than regular mutual funds. However, actual performance depends on the strategy and market conditions and no return is guaranteed.

Minimum investment sizes for SIFs are much larger than for mutual funds and typically range between ₹25 lakh and ₹1 crore per investor. Some new funds are lowering the entry point to ₹10–15 lakh to attract upper-middle-class investors.

Regulatory Support

• SEBI Framework → Specialized Investment Funds operate under SEBI’s Alternative Investment Fund (AIF) regulations, ensuring compliance, disclosures, and investor protection.

• Transparency & Reporting → Mandatory reporting of fund performance and holdings, unlike traditional PMS.

• Investor Safeguards → Custodians, auditors, and independent trustees monitor fund activity.

• Flexibility within Rules → SEBI allows innovation in strategies (sectoral, ESG, global), but within a regulated environment.

• Tax Efficiency → Structured in a way that investors may get pass-through taxation benefits (depending on category).

Future Outlook

• Rapid Growth Expected → As HNIs and family offices look for alternatives, SIFs are projected to grow sharply in the next 5 years.

• Attracting Global Capital → Opportunity to channel foreign investments into India via regulated funds.

• Adoption by Wealth Managers → Increasingly offered by banks, fund houses, and private wealth firms as part of portfolios.

• Wider Reach → Slowly opening pathways for upper-middle-class investors, not just ultra-HNIs.

• Third Pillar of Investments → Alongside Mutual Funds & PMS, SIFs are emerging as a new mainstream investment category.

• Policy Push → Regulators keen on strengthening India’s capital markets by diversifying investment products.

Specialized Investment Funds (SIFs) represent the next step in the evolution of investment options in India. By combining the accessibility of Mutual Funds with the personalization of PMS, they provide an effective solution for sophisticated investors. As awareness grows and regulatory frameworks strengthen, SIFs are likely to play a pivotal role in shaping the future of wealth management in India.