INTRODUCTION
SEBI issued a circular on “Regulatory Framework on SIF” on 27th February 2025 to cater the need of regulating Specialised Investment Funds (SIF). This circular comes into effect from 1st April 2025 and AMFI is directed to issue guidelines in this regard by 31st March 2025. The circular applies to all the Mutual Funds, Asset Management Companies (‘AMC’), Trustee Companies or Board of Trustees of Mutual Funds, Registrar and Share Transfer Agents, Recognized Stock Exchanges, Recognized Clearing Corporations, Depositories and Association of Mutual Funds in India (‘AMFI’). Thus, the circulars cover a very wide and broad area if investment circular.
SEBI CIRCULAR FOR SPECIALISED INVESTMENT FUNDS
The circular provides guideline to regulate the SIFs. Let us discuss the circular in depth-
1.Eligibility– The regulation provides two routes to an investment fund to establish an SIF in India-
Route 1(Sound Track Record)– The Fund must have been active from last three years and must have maintained an average AUM of minimum Rs. 10,000 crores in the last 3 years. Further, there shall be no action taken against such AMC or sponsor in the period of last 3 years.
Route 2 (Alternate route)- AMC must appoint a Chief Investment Officer with a minimum experience of 10 years in fund management and must have managed an average AUM of at least Rs. 5,000 crores and an Additional Fund Manager with a minimum experience of 3 years in fund management and must have managed an average AUM of at least Rs. 500 crores.
Implication– These routes ensure that only strong players become the part of SIF markets. This will lead to reducing weak players which will lead to quality investment funds only.
2. Branding and Advertisement– AMC must ensure the clear differentiation of SIF from Mutual Fund by creating a different logo, website and brand name and shall comply with the advertising standards and guidelines.
Implication– The advertising guidelines will bring clarity for retail investors. Thus, it protects the rights and interest of the investors by saving them from misrepresentation.
3. Investment Strategies– SEBI has permitted only three types of investment strategies, which can be launched under the SIF, namely- Equity Oriented Investment Strategies, Debt Oriented Investment Strategies and Hybrid Investment Strategies.
Implication– Limiting the number of strategies will lead to less complexity and makes it a risk manages investment strategy. This ultimately helps the investor to understand all investment strategies better and choose the best one for them.
4. Minimum Investment threshold– SIF will not accept an investment amount less than Rs. 10000 across all investment strategies. However, this threshold is not applicable on accredited investor and must not include investments made by the investor in regular MF schemes of the same AMC.
Implication– This threshold is created to filter out all the non-serious investors and focus on serious and informed investors only. This will boost the participation of accredited investors in their niche strategies.
5. Restriction on investments– Investment strategy under SIF can only invest upto 20% of its NAV in debt and money market securities which are issued by single issuer and are rated AAA, can invest upto 16% in securities rated AA and only 12% in securities rated A or lower. The threshold can be extended to 5% with prior approval of trustees of MF and AMC Board.
Implication– The restriction imposed on investment reduces the risk of exposing investors to low quality instruments. This will enhance the credit discipline in portfolios of funds and will ultimately protect investors from systemic risks.
6. Subscription and Redemption Frequency– The SIF can choose the frequency of subscription and redemption. Subscription frequency can be different from Redemption frequency. Further, a notice period shall be provided for maximum of 15 days by AMC for redemption of investment.
Implication– Option provided to funds to choose the frequency, provides them with operational flexibility. Further, the clear notice period safeguards the interest of the investors. Thus, it provides liberty to the funds while protecting the interest of investors.
7. Listing of units of investment strategies– The units of the investment strategies of SIF shall be listed on recognised stock exchange. Investment Strategies not including daily investment strategies) will be classified as ‘Interval Investment Strategies’.
Implication– Listing the funds on stock exchanges enhances transparency and allows easy entry and exit opportunity for investors. Further, this will also ensure that the investment strategies are in compliance with SEBI Rules and is following the best practices.
8. Benchmarking of Investment Strategies– Single-tier benchmark structure will be applicable on the investment strategies of SIF.
Implication– A single-tier benchmarking system will create uniformity among the funds, which will promote transparency and improve the performance of SIFs.
9. Distribution of Specialized Investment Funds– Entity and its product must have passed the National Institute of Securities Markets (‘NISM’) Series-XIII: Common Derivatives Certification Examination.
Implication– Permitting only NISM Certified entities will limit the market to the informed and aware investors. This will reduce the scope of mis-selling, promoting ethical and quality distribution.
10.Disclosure in offer documents– Disclosure of Redemption and subscription frequency of the investment strategy, Notice period of the investment strategy, Frequency of portfolio disclosure, Scenario analysis for derivative positions, regarding investment in derivatives along with the maximum limit on investment in derivatives for other than hedging and portfolio rebalancing exposure; liquidity risk management tools are required.
Implication– Mandatory disclosures helps the investors to make informed choice and mitigate risks. Thus, it prevents misuse of derivates and enhances the credibility of SIFs.
11. Risk Band– AMFI must issue the evaluation and calculation of risk levels of the Risk-Band, in consultation with SEBI, on or before March 31, 2025. SIF must disclose the risk level of investment strategies by 31st March of every year.
Implication– Publishing risk levels annually will lead to regular risk evaluation across the funds. This will provide awareness to the investors to make informed decision and mitigate risks.
CONCLUSION
This SEBI circular is a future oriented circular which aligns with the intention of SEBI to regulate the modern-day issues in the investment market. Since, SIF is a new investment fund, the SEBI has come up with the circular to regulate it. This circular protects investors and transparency by providing clear guidelines on risk band, fund management, benchmarking and other such prominent aspects related to investment fund market.
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