The market regulator SEBI recently allowed mutual funds to introduce a new asset class – Specialised Investment Fund (SIF), that is placed between a regular mutual fund scheme and PMS/AIFs in terms of investment requirement. The product can be launched from April 1, SEBI said.
Minimum investment
The minimum investment amount in SIF is ₹10 lakh as against ₹50 lakh required for PMS (Portfolio Management Services) and ₹1 crore for AIF (Alternative Investment Fund). However, the minimum investment threshold of ₹10 lakh will apply exclusively to investments under SIF and does not include investments made by an investor in regular MF schemes of the same AMC, SEBI has clarified.
As in the case of regular MF, fund house can offer systematic investment options such as Systematic Investment Plan, Systematic Withdrawal Plan and Systematic Transfer Plan under SIF.
“Over the years, a gap has emerged between MFs and PMS in terms of portfolio flexibility, creating an opportunity for a new investment product. To bridge this gap, the SEBI (Mutual Funds) Regulations, 1996 have been amended to introduce the broad regulatory framework for the new investment product –Specialised Investment Fund,” the regulator reasoned out for introduction of such product.
Who can launch
The product, however, cannot be launched by all mutual funds, including the likes of Zerodha, Unifi, White Oak, Bajaj Finserv, Helios, Groww, etc, as only MFs in operation for at least three years and an average asset under management of not less than ₹10,000 crore, in the immediately preceding three years, can launch SIFs.
However, if the newer entrants wish to launch SIF, they can do so after appointing a chief investment officer (with experience of 10 years managing assets worth ₹5,000 crore) and a fund manager (with three years experience handling AUM of ₹500 crore).
Investment strategy
To start with, SEBI has allowed fund houses to launch three schemes – Equity Long-Short Fund, Equity Ex-Top 100 Long-Short Fund and Sector Rotation Long-Short Fund – under Equity Oriented Investment Strategies. Under, Long-Short equity funds, minimum investment in equity and equity-related instruments should be 80 per cent while maximum short exposure through unhedged derivative positions should be 25 per cent.
In simple terms, the strategy involves taking a long position in stocks rated as buy and a short position on overpriced shares. Under the Ex-Top 100 category, minimum investment in equity and equity-related instruments of stocks, excluding top 100 stocks by market capitalisation, should be 65 per cent and minimum short exposure should be 25 per cent.
Under Sector Rotation, the fund manager should invest at least 80 per cent in maximum four sectors, while maximum short exposure has been pegged at 25 per cent. SEBI has further clarified that short exposure should apply at the sector level, covering all stocks within that sector held in the portfolio. For instance, if the fund takes a short position in the Auto sector, all Auto sector stocks in the portfolio must be held as short positions.
Benchmark indices
The benchmark indices for equity oriented investment strategies should be compared against BSE Sensex, NSE Nifty or BSE 100 or CRISL 500, etc.
Similarly, under debt-oriented category, two schemes – Debt Long-Short Fund and Sectoral Debt Long-Short Fund – can be launched. Active Asset Allocator Long-Short Fund and Hybrid Long-Short Fund are also allowed.
Exit option
The subscription and redemption frequency of investment strategy under SIF may be based on the nature of investments, including daily, weekly, fortnightly, monthly, quarterly, annually, fixed maturity, or other suitable intervals.
The SIF may decide on the appropriate frequency of subscription/redemption to allow the fund managers to adequately manage liquidity of the fund without imposing undue constraints on the investors. The subscription frequency and redemption frequency of an investment strategy may be distinct from each other. Illustration: An investment strategy may permit daily subscriptions, while offering weekly redemptions.
Will it appeal to investors?
Initially, it will see only a lukewarm response from investors as there is not enough track record to see their performance. Also, not all instruments in F&O are active except for a few indices and stocks. It may prove difficult for fund managers to adopt a dynamic strategy. Besides, entry amount of ₹10 lakh is at a slightly higher level for retail investors. However, with the emergence of so many family offices, SIFs may appeal to them.
