SEBI Launches Specialized Investment Funds to Bridge the Gap Between Mutual Funds and PMS
SEBI introduced Specialized Investment Funds in the Indian investment landscape. The aim is to bridge the gap between mutual funds and Portfolio Management Services, as it will provide a middle ground for investors who require personalized strategies without the entry requirements of PMS, which are pretty high.
What Are Specialized Investment Funds?
Specialized Investment Funds are reserved for the more informed investor willing to take a little higher risk in the hope of achieving better returns. The SIF requires a minimum investment of Rs.10 lakh, giving the fund manager greater flexibility than the old-fashioned mutual funds. SIFs can exploit all the gamut of investments ranging from equity to debt, and everything in between.
However, fund managers should follow certain restrictions to ensure disciplined investment practices. The key guidelines encompass the following:
Rules Regarding Debt Instruments
- In the case of single issuer exposure, it is restricted to 20% of total assets. However, this can be extended to 25% subject to certain approvals from trustees and the board of directors.
- The investments in government securities and treasury bills are not subject to any cap of 20%.
Rules for Equity Investment
- SIF can invest up to 15% of the paid-up capital of a company that enjoys voting rights, above the maximum permissible limit of 10% under the mutual fund route.
- The individual holding of equity shares or of any one company is to be limited to 10 per cent of the Net Asset Value of the Scheme.
Rules for REITs and InvITs
- Up to 20% of the fund’s assets can be allocated to Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs).
- Exposure to any single issuer within these categories is capped at 10%.
Why Are SIFs Needed?
Currently, in an investment ecosystem, the area from mutual funds, though accessible to a larger number of clients and professionally managed, also does not allow for sufficient flexibility, while PMS on the other hand allows only for customized strategies, the required corpus being at least Rs 50 lakh, hence rendering it out of bounds of several investors.
This gap SIFs seem to fill by amalgamating the flexibility of a PMS with the controlled approach of a mutual fund.
Advantages of Specialized Investment Funds
There are several advantages provided by SIFs, such as:
1. Access to Unique Opportunities: They provide access to special investment strategies and classes of assets that are otherwise unavailable in traditional investments.
2. Potential for Higher Returns: By following a focused approach with higher risk, SIFs have the potential to bring more returns.
3. Portfolio Diversification: SIFs help diversify portfolios by adding uncorrelated asset classes or strategies.
4. Professional Management: These funds are managed by experienced professionals with expertise in their respective fields.
Investor Considerations
Even though SIFs provide the above benefits, they have challenges as well:
- Higher Risk: The focused nature and strategies make them riskier.
- Limited Liquidity: Some investments, such as private equity or real estate, may not be easily sold.
- Higher Fees: Specialized management and research result in higher fees compared to traditional mutual funds.
A New Era for Indian Investors
This step is a significant one in the evolution of India’s investment market with Specialized Investment Funds. They give new avenues for growth to sophisticated investors, balancing flexibility and professional management.
The investor must have a deep understanding of the risks and complexities associated with SIFs, which would also match the investment goal and risk profile of an investor. As such, SIFs can offer higher returns and diversification, so they will play a pivotal role in shaping the future of investments in India.
