SEBI Introduces SIF Investment Framework for Enhanced Fund Management
Investment strategies for Specialized Investment Funds (SIFs), which are designed to merge the characteristics of mutual funds and Portfolio Management Services (PMS), became clearer on Thursday as the Securities and Exchange Board of India (SEBI) released a new framework for the new investment option.
The Association of Mutual Funds in India (AMFI) has been directed to release standard guidelines by March 31, 2025.
Investment Strategies
Seven overall investment plans for equity, debt and hybrid space have been given approval for launch by SIF.
Equity Component Comprises Three Plans
- Equity long-short fund: Herein, 80% minimum exposure would be required to equity and a maximum 25% short exposure by way of unhedged derivative positions in equity.
- The second option is the Equity Ex-Top 100 Long-Short Fund. Stocks that are not the top 100 largest by market capitalization shall have at least a minimum exposure of 65%, while maximum exposure of short exposure via unhedged derivative holdings in equity excluding large-cap shall be 25%.
- The third is the Sector Rotation Long-Short Fund, in which the minimum exposure to equity instruments would be 80% in a maximum of four sectors.
Two Strategies of Debt Segment
The long-short fund and the sector long-short fund. The hybrid market will have two strategies, as well – active asset allocator long-short funds and hybrid long-short funds.
Such strategies will not invest over 20% of its NAV in debt and money market securities offered by one issuer with a rating of AAA or 16% in securities with ratings AA or 12% in securities with ratings A and lower. These instrument limits can be increased up to 5% of the NAV of the investment strategy with prior approval of Mutual Fund trustees and board of the AMC.
They can take exposure of up to 25% of the net assets in the allowable exchange-traded derivative instruments, that is, for purposes other than hedging and portfolio rebalancing.
Investment Benchmarks
Equity-based investment options shall be compared with a relevant broad market index like BSE Sensex, NSE Nifty, BSE 100, CRISL 500, etc. Whereas debt-based and hybrid investment options shall be compared with a relevant broad market index that is reflective of the portfolio of the fund.
Only a single investment strategy will be permitted to be initiated under each category to avoid the proliferation of too many strategies and in line with the manner in which mutual fund schemes are classified.
Who can initiate SIF?
A registered mutual fund will make an application for prior approval to SEBI for the setting up of an SIF.
There are two channels through which mutual funds may initiate SIF subject to satisfying under either one of the channels.
Under the first avenue, mutual funds should have at least a three-year operating history and an average AUM of at least Rs.10,000 crore for the previous three years.
The second avenue is referred to as an alternate avenue, whereby the chief investment officer (CIO) of the SIF should have at least 10 years of fund management experience and have managed an average AUM of not less than Rs.5,000 crore. This approach also calls for another fund manager with three years of experience and an average AUM of at least Rs 500 crore. SEBI also said that the asset management company (AMC) can share resources for operations between mutual funds and SIF.
Investment Process
The total investment of an investor in all investment strategies should not be below Rs. 10 lakh.
The AMC can provide systematic investment facilities like Systematic Investment Plan (SIP), Systematic Withdrawal Plan (SWP) and Systematic Transfer Plan (STP) for investment plans initiated under the SIF.
As stated above, SEBI has made it clear that Specialised Investment Funds (SIFs) investors need to have a minimum investment of Rs. 10 lakh. If an investor withdraws (redeems) part of his investment and the amount goes below this threshold, he will not be permitted to retain the rest. He will have to withdraw the entire amount. But if the investment drops below Rs. 10 lakh because of market movements (due to a fall in NAV), it will not be treated as a breach. Here, the investor may remain invested, but if they want to redeem, they have to take out the entire amount.
The frequency of redemption and subscription of an investment scheme under SIF can depend on the nature of investments. The investors can be permitted to subscribe or redeem on a daily, weekly, fortnightly, monthly, quarterly, yearly, or fixed maturity period basis, depending on the structure of the fund. To ensure an exit for the redeeming investors, the units of all close-ended and interval schemes of SIF shall be compulsorily listed on recognised stock exchanges.
Besides that, the market regulator has also expressed that SIFs will be represented via a risk bank like mutual fund schemes. The SIFs will report the portfolios on the last day of each alternate month, and the distributor involved in distributing mutual fund products will also be able to provide products under the SIF. However, they should also clear the National Institute of Securities Markets (‘NISM’) Series-XIII: Common Derivatives Certification Examination.
SEBI’s Other Announcement
SEBI, in another announcement on Thursday, unveiled ‘Bond Central’, a portal of centralised databases for corporate bonds. Bond Central will seek to establish one genuine source of information regarding Indian corporate bonds issued in the country. Investors have access to seeing corporate bonds at exchanges and at issuers; prices between two debt securities are also comparable. SEBI has also given a circular to the effect that asset management companies (AMCs) will invest the money received through the new fund offer (NFO) within 30 business days of the date of allotment of units. In case the AMC fails to invest the money in 30 business days, it must provide reasons in writing to the Investment Committee of the AMC.
