Specialised Investment Funds (SIFs) Decoded

Specialised Investment Funds (SIFs) are the latest products intriguing the minds of Indian investors. This is natural given that SIFs were launched recently by SEBI in February 2025. Common questions on investors' minds include : What are SIFs? How do they work? How are they different from other asset classes? How are they taxed? Is there a case for investing in them? And these are the questions that I will answer today.

The Nature Of The Beast

SIFs are currently being advertised by SEBI as a new asset class. They carry a minimum ticket size of Rs 10 lakh per person. They exhibit characteristics that are associated with both mutual funds and structured products (PMS, AIF, hedge funds etc). They offer the investment flexibility of mutual funds. But they carry a minimum ticket size. And they may employ complex products and investment strategies. This represents similarity to structured products. SIFs are therefore touted to bridge the gap between both these product categories.

SIFs Vs Mutual Funds

SIFs are different from mutual funds mainly in the way that they participate in the markets. Firstly SIFs are allowed to allocate upto 25% of their funds to derivatives. Importantly SIFs are allowed to have unhedged positions in derivatives. Mutual funds are only allowed to use derivatives for hedging.

SIFs are also allowed to invest more of their assets in terms of overall exposure and individual avenues compared to mutual funds. This is true in respect of stocks bonds sectors and InvITs (Infrastructure Investment Trusts).

A comparison of investment limits between mutual funds and SIFs for various avenues have been laid out in the table below.

This clearly means SIFs are riskier than traditional mutual funds. There are also multiple varieties of SIFs available. Each variety follows a specific strategy. Investors must therefore have a clear idea of each strategy. They must ensure that the strategy of the SIF they want to invest in matches their risk profile and investment objective.

To Invest Or Not To Invest (The Golden Question)

There is (at least in theory) a plausible case for investing in SIFs. SIFs may be said to serve those who wish to go beyond mutual funds but are not willing to commit to structured products. But a theoretical case can be made for every investment option available. The theoretical case is usually known as the narrative for the product. And there is a clear narrative here.

The regulator and the financial services industry want us to believe that those with more money available to invest should look to go beyond conventional investment options. They want us to believe that such people should be willing to take more risks. SIFs are therefore touted as a way to take our investing to the 'next level'. But one must answer this question from a practical perspective. This would help us see beyond the narrative. And the truth beyond the narrative reveals a different story.

To begin with, those with the capacity and willingness to take more risk may not need to do so. Also there is no 'next level' in investing. Mature investors would realise that a growing portfolio provides reason to simplify the portfolio. Including untested products like SIFs would only introduce greater. The only things they would guarantee are higher risks and higher costs.

SIFs are currently being positioned as a 'new asset class'. All established asset classes have a historical track record of performance and characteristics. This helps investors understand the potential risks and rewards inherent to the asset class. But SIFs are currently less than a year old. So there is no question of there being a robust database regarding characteristics and past performance. It would therefore be wrong to consider SIFs as an asset class. They can at best be considered as a category of investment products.

Finally SIFs are new to Indian markets. Our markets are yet to learn how to live with such products. The regulator and financial services industry will themselves live and learn with us. SIFs are therefore in need of a lot more evolution. And this will take a considerable amount of time to come. This makes it clear that there is very little sense in including SIFs within a portfolio at present. The only scenario where they might make sense is if an individual's networth is well in excess of the amount required for financial independence.

A portion of the excess net worth may be allocated to SIFs in such cases. But this is a risk to be taken only at the investor's own discretion. For the most part, SIFs are certainly worth watching over the near future. But I am very confident that they are not worth participating in at this moment. And this is likely to remain true for some time to come.