SEBI’s Clarifications On Specialized Investment Funds (SIF): A Step Toward Flexibility And Growth

Posted On - 21 April, 2025 • By - Aakansha Mewar

Introduction

The Securities and Exchange Board of India (SEBI) released a circular providing clarification on the regulatory framework for Specialized Investment Funds (‘SIF’).[1] These aim to enhance flexibility for fund managers and investors while strengthening regulatory clarity across the mutual fund industry.

Understanding the Clarifications

Exemption of Maturity Provisions for Interval Investment Strategies

SEBI has made it clear that provisions under paragraph 12.27.2.4 of the Master Circular for Mutual Funds dated June 27, 2024[2], with respect to the maturity of securities in interval schemes will not be applicable to Interval Investment Strategies under SIFs.

What this Means:

  • Generally, under interval schemes, the funds are supposed to make the underlying securities’ maturity synchronous with the interval of the scheme’s reopening for repurchase/redemption.
  • But for Interval Investment Strategies under SIFs, this has now been specially exempted.
  • This freedom is likely to give SIFs more room to design their investment portfolios without having to be shackled by the fixed maturity norms applicable to traditional interval schemes.

This relief is a big one for fund houses arranging innovative products under the SIF category so that they could invest in a wider variety of securities without running into technical contraventions involving asset maturity.

Alteration of Minimum Investment Threshold Requirement

The circular also alters the previous provisions involving minimum investment thresholds for SIFs.

Previously, SEBI’s SIF Circular dated February 27, 2025[3], required a minimum investment amount per strategy. However, the new circular refines this approach. The amended paragraph 4.1.1 now reads:

“The AMC shall ensure that an aggregate investment by an investor across all investment strategies offered by the SIF, at the Permanent Account Number (PAN) level, is not less than INR 10 lakh (hereinafter referred to as the ‘Minimum Investment Threshold’).

Subject thereto, the said provisions shall not apply to mandatory investments by AMCs for specified employees under paragraph 6.10 of the Master Circular for Mutual Funds dated June 27, 2024.”

Key Takeaways:

  • Rather than applying the INR 10 lakh threshold separately to every investment strategy, it is now to be calculated aggregately for all strategies within the SIF provided to an investor.
  • This shift is crucial because it enables investors to diversify their investments across various strategies and they can do this without having to invest INR 10 lakh separately in each strategy.
  • Importantly, compulsory investments by AMCs on behalf of their specified employees (under paragraph 6.10 of the MF Master Circular) are not subject to the minimum threshold requirement.

This action is perceived as investor-friendly, as this allows investors to have access to a range of strategies and retain an overall minimum exposure.

Impact on Asset Management Companies (AMCs)

The relief from maturity matching rules for Interval Investment Strategies under SIFs gives AMCs more flexibility in portfolio design.

  • Product Innovation: Interval Investment Strategies can now be designed by AMCs without being bound by the maturity profiles of the underlying assets. This allows for more innovative and customized investment strategies that can address particular investor requirements.
  • Lower Compliance Burden: Previously, matching security maturities to interval redemption periods required strict monitoring of compliance. With the relief, the working burden on compliance teams will lighten, allowing AMCs to allocate more time towards strategy formulation and performance enhancement.
  • Wider Choice of Assets: AMCs can now venture into investments in longer-term or less liquid securities without regulatory apprehensions regarding mismatch with redemption intervals, potentially resulting in improved risk-adjusted returns to investors.

In respect of minimum investment threshold adjustment:

  • Increased Coverage: AMCs are now able to tap a larger investor universe who would like to invest smaller sums across a series of strategies rather than investing INR 10 lakh in each one of them. This can lead to greater participation and encourage diversification in SIFs.
  • Ease of Administration: Managing investor on-boarding, PAN-level monitoring of investments, and compliance checking is easier with a collective threshold in place of strategy-specific individual thresholds.

Impact on Investors

For the investor, and especially High Net-Worth Individuals (HNIs) and educated investors who represent the SIF’s prime customer base, such clarifications are beneficial in numerous ways:

  • Diversified Exposure: SIF now allows investors to distribute their investment of INR 10 lakh between different strategies, thus providing the opportunity for diversified exposure without facing additional compliance hurdles.
  • Lower Entry Barrier Per Strategy: As the barrier now rests at the aggregated level, the investor can contribute smaller amounts towards each strategy and create more discerning portfolios by catering to risk-return individuality.
  • Enhanced Portfolio Flexibility: The relief from the maturity requirements for interval schemes implies that investors may be able to enjoy improved returns through investing in portfolios that can accommodate a larger class of instruments, such as longer-term or less-liquid instruments.

But investors will also have to be more diligent in their due process since the flexibility granted to the AMCs could lead to portfolios with differing liquidity profiles or increased complexity.

Registrar and Share Transfer Agents (RTAs) and Depositories Impact

For RTAs and Depositories that are to maintain investor records and compliance reporting:

  • PAN-Level Monitoring: They will need to modify their systems so that minimum investment levels are monitored at the PAN-level for all strategies, not individually per strategy.
  • Data Consolidation: Efficient and accurate consolidation of investor data across various SIF strategies will be imperative to facilitate smooth compliance and reporting.
  • Operational Adjustments: Only slight adjustments to onboarding processes, compliance software, and reporting formats might be needed to adapt to the aggregate investment tracking methodology.

Effects on Trustee Companies and Boards of Trustees

Trustees, who are responsible for ensuring that mutual funds are run in compliance with SEBI guidelines, will now:

  • Modify Oversight Mechanisms: Trustees will have to adapt their compliance checklists and audit procedures to reflect the new aggregate threshold.
  • Regulate Investment Strategy Approvals: Trustees will have to take note of the implications of increased flexibility in interval schemes when approving new investment strategies, particularly in terms of liquidity risk management and fair treatment of investors.

Effect on Recognized Stock Exchanges and Clearing Corporations

While the direct effect on stock exchanges and clearing corporations can be limited:

  • Operational Changes: Any exchange-traded SIF schemes or interval funds depending upon stock exchange platforms for trading will need to ensure that revised guidelines for investment limits and scheme design are incorporated into their systems and investor communications.
  • Investor Awareness: Exchanges can be required to coordinate with AMCs and AMFI to ensure effective communication of the changes to investors transacting through exchange infrastructure.

Role of AMFI and Industry Participants

AMFI, the coordinating body of the industry:

  • Uniform Implementation: Will be tasked with providing clarifications, FAQs, or guidance notes to facilitate uniform interpretation and implementation of the SEBI circular by all AMCs.
  • Training and Awareness: Training programs for mutual fund distributors, RTAs, and AMCs can be started by AMFI so that operational consequences of PAN-level aggregation and exemption in maturity are clearly understood and applied appropriately.
  • Feedback Channel: AMFI will remain a channel for collecting feedback from market participants on any additional practical difficulties resulting from the effectuation of these changes.

Conclusion

SEBI’s clarifications strike a careful balance between regulatory flexibility and investor protection. By easing maturity restrictions and redefining the minimum investment threshold, the framework empowers AMCs to innovate while enabling broader investor participation. However, the enhanced flexibility also demands greater diligence from both fund managers and investors. Overall, these changes signal SEBI’s commitment to fostering a dynamic, responsive investment ecosystem while maintaining systemic stability and transparency.

[1] https://www.sebi.gov.in/legal/circulars/apr-2025/clarification-on-regulatory-framework-for-specialized-investment-funds-sif-_93401.html.

[2] https://www.sebi.gov.in/legal/master-circulars/jun-2024/master-circular-for-mutual-funds_84441.html.

[3] https://www.sebi.gov.in/legal/circulars/feb-2025/regulatory-framework-for-specialized-investment-funds-sif-_92299.html.

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