Specialized Investment Funds: the framework

The Specialized Investment Fund (SIF) is the reason this exam exists. It is a new product class that lets a mutual fund AMC run strategies with more freedom than a regular scheme, for investors with more money and more risk appetite. The exam tests the numbers and the rules in detail, so learn this chapter cold.

What an SIF is and why SEBI created it

Until 2025 an Indian investor had a gap in the product ladder. A mutual fund scheme accepts ₹500 but must stay long-only and tightly diversified. A Portfolio Management Service starts at ₹50 lakh and an Alternative Investment Fund at ₹1 crore. The SIF fills the space between. SEBI amended the Mutual Fund Regulations in late 2024 and issued the operating framework in February 2025; the framework took effect from 1 April 2025.

An SIF is launched by a registered mutual fund AMC, under the same sponsor and trustee, but as a separate product with its own identity. Each product inside an SIF is called an investment strategy, not a scheme. Strategies can take long and short positions, and may be open-ended, close-ended or interval. For a close-ended or interval strategy, units are listed on an exchange. An open-ended strategy may impose a redemption notice period of up to 15 working days.

Which AMCs may launch an SIF

SEBI allows two routes. Route 1 (sound track record): the mutual fund has been operating for at least three years and has average AUM of at least ₹10,000 crore over the preceding three years, with no regulatory action against the sponsor or AMC in the last three years. Route 2 (alternate): the AMC appoints a Chief Investment Officer for the SIF with at least ten years of fund management experience managing an average AUM of ₹5,000 crore or more, plus an additional fund manager with at least three years' experience managing at least ₹500 crore. Either way the AMC must have systems to segregate SIF portfolios and operations from its mutual fund.

The ₹10 lakh minimum: the rule and its edges

This is the most tested number in the syllabus. Each investor must invest a minimum of ₹10 lakh in the SIF of an AMC, measured at the PAN level across all investment strategies of that AMC. It is not per strategy, and it is not across the industry. An investor can spread the ₹10 lakh across two strategies of the same AMC, but holdings in another AMC's SIF do not count.

Accredited investors (as defined by SEBI, certified by an accreditation agency) are exempt from the threshold. Systematic plans (SIP, SWP, STP) are permitted as long as the ₹10 lakh floor is respected after each transaction.

The framework distinguishes an active breach from a passive breach. If the investor's own transaction (a redemption, a switch out) takes the holding below ₹10 lakh, that is an active breach and the investor must redeem the entire remaining holding. If the value falls below ₹10 lakh only because the market fell, that is passive and nothing is forced.

Strategy categories and the short exposure limit

SEBI has defined strategy categories under three heads, and an AMC may launch only one strategy per category:

• Equity: Equity Long-Short (at least 80% in equity, unhedged short up to 25%); Equity Ex-Top 100 Long-Short (at least 65% in stocks outside the top 100 by market cap); Sector Rotation Long-Short (limited to a few sectors at a time, with short positions at sector level).
• Debt: Debt Long-Short (debt instruments with short exposure through exchange-traded debt derivatives); Sectoral Debt Long-Short (at least two sectors, capped exposure per sector).
• Hybrid: Active Asset Allocator Long-Short (dynamic allocation across equity, debt, REITs and InvITs, commodity derivatives); Hybrid Long-Short (minimum 25% each in equity and debt).

The headline freedom is the ability to go short. An SIF strategy may take unhedged short exposure through exchange-traded derivatives up to 25% of net assets. "Unhedged" means a short that is a directional bet, not one that offsets a long position in the same security or index. Derivatives used purely for hedging and portfolio rebalancing are treated the way they are in a mutual fund. Short selling of cash securities is not the route; the short is built with futures and options.

Single-issuer limits are also wider than in a mutual fund. A strategy may hold up to 15% of net assets in the equity of one company, and up to 20% of NAV in the debt of one issuer (extendable to 25% with trustee approval). Exposure to REITs and InvITs is capped at 20% of NAV, with 10% per issuer. Where a limit is not stated in the syllabus, answer "as notified by SEBI".

Branding, disclosure and the risk-band

An SIF must be marketed under a distinct brand name and logo, with a separate website or web page, so that investors do not confuse the higher-risk strategies with the AMC's mutual fund schemes. The AMC's name may be referenced for identification, with the disclaimers SEBI prescribes. Advertisements must carry the SIF standard disclaimer and must not describe strategies as "schemes".

Instead of the six-level Riskometer, SIF strategies use a risk-band with five levels, from Band 1 (lowest) to Band 5 (highest), computed on the portfolio and disclosed on the strategy document and the website, with changes notified to investors. Portfolios are disclosed at least monthly. An offer document must carry scenario analysis showing how derivative positions behave in stress. Strategies are benchmarked to a single-tier benchmark reflecting the asset class.

Who may distribute an SIF

SIF units are sold only through distributors who hold an AMFI ARN and the right NISM certificate. Because strategies use derivatives, SEBI initially required the NISM-Series-XIII (Common Derivatives) certificate. In July 2026 NISM launched NISM-Series-V-D, built for SIF distribution, which covers mutual funds, SIFs and derivatives together. V-D is now the designated certificate; the XIII route for new SIF distributors ends on 21 September 2026. A V-D holder may also distribute ordinary mutual fund schemes. Fund managers running SIF strategies must separately hold NISM-XIII.

The distributor's duties go beyond the sale. Confirm the ₹10 lakh threshold at PAN level before the first purchase, explain the redemption notice period and the short exposure, and record the EUIN on every transaction. Commission is trail only and comes out of the strategy's expense ratio, which follows the mutual fund TER slabs.