Specialized Investment Funds Cover story Bridging the Gap Between Mutual Funds and PMS in India

Abhishek Wani explains— Specialised Investment Funds (SIFs) are the latest entrant into India’s financial market landscape. Introduced by SEBI and effective from April 1, 2025, these funds aim to bridge the wide gap between traditional mutual funds, which are retail-friendly, and Portfolio Management Services (PMS) or Alternative Investment Funds (AIFs), which are typically reserved for the ultra-wealthy 

Until now, Indian investors had two major routes for investing their money through professional fund managers. On one end were mutual funds, ideal for retail investors looking for ease, transparency, and regulated low-cost options. On the other end were Portfolio Management Services (PMS) and Alternative Investment Funds (AIFs), which offered more complex and flexible strategies but required high entry thresholds—typically ₹50 lakh to ₹1 crore.

However, for investors in between—those with investible surpluses of ₹10 to ₹50 lakh—there was a clear gap. Enter Specialised Investment Funds (SIFs). Introduced by SEBI in April 2025, SIFs aim to offer a sweet spot: structured, strategyrich products with higher flexibility than mutual funds, but lower minimums and greater transparency than PMS or AIFs. SIFs are designed for the growing base of affluent investors who want access to modern strategies without stepping into the complexities of PMS.

Why Were Specialised Investment Funds (SIFs) Introduced?
India’s investment ecosystem lacked a product for mid-sized investors who want more than mutual funds but don’t qualify for PMS or AIFs. The capital market has matured, and many investors now seek tactical strategies—like long-short funds, sector rotations, or hybrid debt-equity allocations—which mutual funds can't always provide due to strict regulatory constraints.

At the same time, PMS and AIFs, while offering this flexibility, lack daily NAVs, have complex fee structures, limited liquidity, and require high minimum investments. There was a regulatory and access mismatch. SIFs aim to solve this by offering regulated, pooled investment vehicles under SEBI’s Mutual Fund framework but with the strategic freedom of Category III AIFs, making them more suitable for the modern affluent investor.

What Makes SIFs Unique?
SIFs operate under a single trust structure, unlike mutual funds which require separate trusts for each scheme. This means fund houses can launch different strategies under the same umbrella, reducing operational hassle and cost. These funds are pooled— just like mutual funds—but they’re strategy-centric, not category-centric.

Each SIF follows a clearly defined investment strategy. For example, one may focus on long-short equity (profiting from rising and falling stocks), another might rotate between sectors based on economic cycles, while others could use multi-asset or credit-based strategies.

Importantly, SIFs offer three fund types: open-ended schemes that allow daily redemptions, closed-ended funds with fixed maturity periods, and interval funds that allow redemptions only at specified intervals. This flexibility lets fund managers manage liquidity better while catering to investors with different time horizons.

Minimum Investment and Risk Disclosures: What You Need to Know
To invest in a SIF, you need to bring in at least ₹10 lakh per scheme per PAN. This amount is much lower than the ₹50 lakh entry for PMS or ₹1 crore for AIFs, but significantly higher than the ₹500 or ₹1,000 needed for SIPs in mutual funds. Once you invest, your balance must not fall below this ₹10 lakh threshold. If it does—perhaps because of a partial redemption—you must either top up the amount or exit fully from the scheme.

Each SIF scheme will also clearly mention its risk level using SEBI’s five-tier risk meter—ranging from Level 1 (lowest risk) to Level 5 (highest risk). This allows investors to match their risk appetite with the strategy. For example, a long-short equity strategy may carry Level 4 or 5 risk, while a conservative hybrid Debt Fund may be Level 2 or 3.

Transparency, Regulation and Tax Treatment: How Are SIFs Different?
Transparency is one of SIFs’ biggest strengths. Unlike PMS or AIFs, which often disclose portfolio positions quarterly and may not share NAVs regularly, SIFs are required to publish daily NAVs and detailed monthly factsheets. They must also disclose expense ratios and maintain performance benchmarks—just like mutual funds.

These funds will be regulated under a new Chapter VI-G of SEBI’s Mutual Fund regulations. This means only SEBIregistered Asset Management Companies (AMCs) with a clean track record can launch them. Fund managers must have the appropriate NISM certifications, ensuring professionalism and regulatory oversight.

Taxation depends on the type of SIF scheme. If the SIF is equity-oriented (holding over 65 per cent in equities), it gets the same 12.5 per cent long-term capital gains (LTCG) tax after one year, similar to equity mutual funds. If it’s debt-oriented, LTCG applies after two years at a 12.5 per cent rate, or slab-based rates for short-term gains.

How Are SIFs Different from Mutual Funds, PMS, and AIFs?
While all four are pooled investment vehicles, they differ widely in terms of accessibility, strategy, transparency, and investor protection.

Mutual funds are highly regulated and liquid, but they offer limited flexibility in terms of strategies. PMS allows custom portfolios, but it's expensive and opaque. AIFs provide access to advanced strategies like private equity or long-short funds but require very high minimums and have low liquidity.

SIFs occupy the middle ground. They are pooled like mutual funds, allow modern strategies like PMS/AIFs, and offer daily NAVs and transparency unlike PMS.

Here’s a simplified comparison:

What Types of Funds Will Be Offered Under SIFs?
The new SIF framework opens the door for a range of themebased and strategy-driven funds, designed to cater to evolving investor needs that go well beyond the traditional equity or debt buckets. Unlike regular mutual funds that operate within rigid SEBI-defined categories like Flexi-cap or Large-Cap, SIFs allow fund managers the freedom to build portfolios purely around investment strategy or market themes—be it long-short bets, macroeconomic shifts, or tactical asset allocation.

Equity SIFs will likely include Long-Short Equity Funds, which take long positions in high-conviction stocks while shorting or hedging others—aiming to generate returns across both bull and bear markets.

Another category is Sector Rotation Funds, where managers dynamically shift exposure across sectors such as IT, banking, energy, or FMCG, depending on market cycles or macroeconomic indicators.

For investors seeking broader diversification, Hybrid SIFs are expected to mix equities, debt instruments, gold, and even international exposure to create dynamically allocated portfolios.

Then there are Credit Strategy Debt Funds, which delve into high-yield corporate bonds or structured debt products, often enhanced with derivative overlays to improve risk-return dynamics.

Types of Products under Specialised Investment Funds (SIFs)

SIF Product Framework: A Strategic Playground

SEBI’s SIF guidelines lay out a detailed blueprint, categorizing these funds by asset class and strategy, and also defining clear rules around derivative exposure, taxation, and redemption frequency. Here's a breakdown of key offerings across equity, debt, and hybrid segments.

Who Should Consider Investing in SIFs?
SIFs are most suited for affluent investors looking to diversify beyond traditional mutual funds. If you’re a long-term investor with ₹10 lakh or more to spare and are comfortable with moderate liquidity and higher strategy-driven risk, SIFs could be a strong addition to your portfolio. They are especially useful for investors who want exposure to tactical themes, riskmanaged strategies, or multi-asset portfolios, and who understand that these funds are not meant for frequent trading or short-term withdrawals. However, they may not be ideal for conservative investors or retirees who prefer stable income and instant liquidity. SIFs also require a higher level of financial understanding, so new investors must educate themselves or consult a financial advisor before investing in them.

Could SIFs Replace PMS or AIFs?
Not entirely. SIFs are complementary, not replacements. They will likely pull investors from Category III AIFs due to similar strategies and lower entry points, but PMS will still appeal to ultra-HNIs demanding bespoke portfolios. However, fund houses must ensure level-playing fields so that one format doesn't cannibalise the other.

SIF vs PMS vs AIF: Which to Choose?

Choose a SIF if :
■ You want a strategy-rich, pooled vehicle with lower entry barriers (₹10 lakh vs ₹50 lakh for PMS or ₹1 crore for AIF)
■ You prefer transparency and SEBI oversight
■ You’re seeking thematic plays or active strategies with limited derivatives.

Opt for PMS/AIF if:
■ You need complete portfolio customisation
■ You are comfortable with opacity and less regulatory standardisation
■ You can meet the high entry thresholds and lock-in periods

Conclusion
SIFs represent a significant leap in India’s investment landscape—bridging the gap between traditional mutual funds and high-entry barrier vehicles like PMS and AIFs. For fund houses, SIFs unlock a new avenue to serve the rapidly expanding cohort of affluent investors who seek strategic, outcome-oriented products. For investors, SIFs offer the best of both worlds: the regulatory comfort and transparency of mutual funds, combined with the flexibility and sophistication of institutional-grade strategies.

Experts rightly view SIFs as a semi-institutional innovation— democratising access to advanced themes such as long-short strategies, credit alpha, and sector rotation. But they are no silver bullet. The use of derivatives, concentrated positions, and thematic overlays means that SIFs are inherently higher-risk. Their success hinges on the skill of fund managers, the clarity of their strategy execution, and the investor’s own ability to navigate short-term volatility or periods of illiquidity.

Ultimately, SIFs are a timely innovation for the maturing Indian investor. But like all powerful tools, they demand clarity of purpose and caution.

Bottom Line: If you're seeking hedge-fund-like exposure with regulatory safeguards—and without the hefty PMS ticket—SIFs may well be your next smart move. Just make sure you walk in with your eyes open, not wide shut.