Specialized Investment Funds (SIFs): Structure, Taxation, Pros & Cons, Should you Invest?

Alternatives

| Written by IME's Investor Desk on 15-Jan-26

Background of SIFs

SEBI introduced the Specialized Investment Fund (SIF) concept in India to bridge the gap between:

Traditional Mutual Funds (MFs)
Portfolio Management Services (PMS)
Alternative Investment Funds (AIFs)

The core idea was to offer mutual fund–regulated vehicles that can run sophisticated strategies (like long-short, hybrid allocations, derivatives, etc.) within a regulated structure, but tailored for experienced/wealthy investors rather than general retail investors.

SIF was envisioned not as a separate licence, but as a new product category inside MF regulations. This new structure allows sophisticated investors an ability to invest in differentiated strategies that include complex derivative based strategies, at a much lower entry min of Rs. 10 lakhs (as compared to Rs. 50 lakhs for PMS & Rs. 1 cr for AIFs)..

3 Categories of SIFs

Equity-oriented SIFs: predominant strategy & risk exposure is to equities
Debt-Orieted SIFs: predominant exposure in fixed-income securities
Hybrid/Multi-Asset SIFs: exposures in more than one asset class

Each SIF category can be broken up into further sub-categories, with the following sub-categories being defined by SEBI

Equity-oriented SIFs:

Equity long-short: min 80% equity, max short 25%
Equity ex-top 100 long-short: mix 65% in ex-top 100 mkt cap stocks, max short 25%
Sector Rotation Long-short: min 80% in equity of max 4 sectors, max short of 25%, short exposure to apply at sector level - if short in a sector, all stocks in the sector must be short positions

Debt-oriented SIFs:

Debt long-short: long-short position in debt securities
Sectoral debt long-short: min of 2 sectors, max 75% exposure in single sector, max short 25%, , short exposure to apply at sector level - if short in a sector, all stocks in the sector must be short positions

Hybrid/Multi-Asset SIFs:

Hybrid Long-short: min 25% equity, min 25% debt, max short 25%
Active asset allocator long-short: dynamic across asset classes - equity, debt, derivatives, REITs/InVits, Commodity derivatives, max short 25%

While SIFs are meant to offer investors access to more complex trading strategies, there are a few important portfolio risk-control rules that helps keep risk levels under control:

Net Exposure: to be 100% or below (no leverage allowed at a net level, even as some strategies can have gross exposures that cross 100%)
Unhedged Derivatives: upto 25% of net AUM
Unlisted Securities: upto 30% of AUM

Key Features of SIFs

Sophisticated Investor Base: SIFs are available to high-value investors, with minimum investment thresholds of 10 lakhs or on par with PMS structures.
Flexible Mandates: Fund managers can operate with fewer restrictions on portfolio construction, allowing for higher concentration, broader asset coverage, or thematic exposure.
Open and Closed Structures: Depending on the strategy, SIFs may offer periodic liquidity or have defined lock-ins.

How are SIFs taxed?

Taxation for SIFs are designed to mirror how mutual funds are taxed. There is no tax at the fund level, and investors pay taxes on gains at the time of redemption. The tax rate that is applicable is driven by the type of asset allocation followed by the SIF:

Equity-oriented SIFs: LTCG (12.5%) / STCG (20%) / LT definition (12 months)
Debt-oriented: taxed at slab rate
Hybrid/Multi-asset: based on their asset-composition - if >65% is in Equity (equity-taxation), >65% in debt securities (at slab rate), if neither >65% in Equity or Debt (12.5% LTCG after 24 months, slab rate below)
Asset allocation is determinator of tax-rate: It is important to understand that it is the funds actual asset allocation (does it meet >65% in equity or >65% in debt) that will determine the tax-rate and not just the classification of the SIF in a particular category

What AMCs have launched (or are planing to launch) SIFs in India?

The following Mutual Funds have announced plans of launching SIFs: Edelweiss MF (Altiva SIF), SBI MF (Magnum SIF), Quant MF (QSIF), Bandhan MF (Arudha SIF), ITI MF (Diviniti SIF), DSP MF (Endurance SIF), 360 ONE MF (Dyna SIF), Union MF (Arthaya SIF), HDFC MF (HSIF), ICICI Pru MF (ISIF), Kotak MF (Infinity SIF), Mirae Asset MF (Platinum SIF), Tata MF (Titanium SIF) and Franklin Templeton MF (Sapphire SIF)

SIFs: Pros, Cons & Should you Invest

SIF’s have the following benefits, that do make them a fairly attractive investment structure

Key Positives of SIFs

Access to Differentiated Strategies at a lower ticket-size: Until now, most complex & derivative-based strategies were available under AIFs with a high min ticket size of Rs. 1 cr. This made these strategies out of the reach for most investors (especially keeping in mind that most investors diversify across multiple funds). At a Rs. 10 lakh min, a much larger pool of investors get access to the more differentiated return payoffs that are possible under these strategies.
Superior taxation to AIFs: Since SIFs are taxed similarly to mutual funds, they enjoy substantial tax benefits over PMS & AIFs - both in terms of the tax-rates (12.5% for equity/non-debt hybrid SIFs, versus speculative taxation on derivatives for PMS & AIFs), as well as taxation timing (only at the time of redemption vs annually for PMS & AIFs). This is a substantial benefit and can help boost post-tax returns.
Tight Qualification Requirements: SIFs have tough qualification criteria, and can only be launched by an AMC which either has (a) managed over 10,000 cr for the preceding 3 years (b) a CIO with a min of 10 years of experience having managed over 5,000 cr of assets of comparable complexity. This ensures that SIF’s can only be launched by high-pedigreed and proven investment managers.

However, it is important to understand that there are some important negatives that investors need to consider (most of which are linked to the nascent stage of this structure in India):

Key Negatives of SIFs

Strategies are not yet clear enough: Most strategies are launched giving fund managers enough flexibility to move portfolio positions around. We will not have a real-world understanding of how these strategies are actually managed in practice, until they have not matured over the next few years.
Talent Constraints: India’s depth in alternative strategy management is still shallow. For complex or tactical approaches, it’s important to assess how the team settles and whether their execution matches the pitch.
Hype ≠ Quality: Launch excitement is often high, driven by distributors, AMCs, and media. But prudent investors should wait for that excitement to subside and evaluate products based on substance, not buzz.

Effectively SIFs have important positives and negatives that makes it important to consider the value these add to your overall investment portfolio & investment objectives prior to investing.

Should You Invest in a Specialised Investment Fund? IME Capital’s Perspective

At IME Capital, we believe the creation of SIFs is a welcome step in India’s maturing investment landscape. It opens the door to innovation and flexibility for those who understand the risks and can evaluate them adequately.

However we recommend that investors avoid the temptation of rushing in - since the investment teams, philosophies and processes will take time to stabalise. Additionally, when evaluating SIFs it may be prudent to focus on funds and teams that have had some form of demonstrable experience in derivative-based strategies (as compared to fully new teams with an unproven track record).

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