Specialized Investment Funds (SIFs): A Complete Guide to SEBI’s New Long-Short Investment Category
In February 2025, SEBI introduced Specialized Investment Funds (SIFs)—a new investment category positioned between traditional mutual funds and Alternative Investment Funds (AIFs).
SIFs allow investors to access long-short strategies, derivatives, and dynamic asset allocation—but within a mutual fund–style structure that offers daily NAV disclosure, transparency, regulated fees, and strict risk controls.
What Is a SIF?
A Specialized Investment Fund (SIF) is a SEBI-regulated mutual-fund-based product that permits sophisticated strategies like equity long-short, hybrid bond-equity allocation, and tactical positioning—without leverage.
Key Features:
- Minimum Investment: ₹10 lakh (aggregate per PAN)
- Dealing: Daily (open-ended or interval structure)
- Expense Cap: Up to 2.25% (declines with scale)
- No Performance Fees
- Daily NAV Disclosure
- Unhedged Short Exposure Limit: 25%
- Total Gross Exposure: Capped at 100% (no leverage)
Think of SIFs as “regulated hedge-fund-style strategies inside a mutual fund wrapper.”
How Equity Long-Short SIFs Work
Unlike traditional mutual funds that only buy stocks, SIFs can both:
- Go Long: Buy undervalued or high-growth stocks
- Go Short: Use derivatives to profit from overvalued sectors or market corrections
Example:
If capital goods look attractive but IT appears expensive, the fund may buy capital goods stocks and short IT through futures or options.
This helps generate:
- Alpha in sideways markets
- Downside protection in corrections
- More stable long-term compounding
SEBI Guardrails: Controlled Risk, No Leverage
SEBI has placed strict safeguards to prevent excessive risk:
- Total exposure cannot exceed 100% of assets
- Unhedged short positions capped at 25%
- Single stock limit: 10%
- Sector cap: 20% (30% for financials)
- Mandatory deployment of NFO funds within 30 days
- Daily mark-to-market valuation
Investors cannot lose more than their invested capital.
SIF vs Mutual Fund vs PMS vs AIF
|
|
Mutual Fund | SIF |
|
|
|---|---|---|---|---|
|
Min Investment |
₹500+ | ₹10 lakh | ₹25–50 lakh | ₹1 crore+ |
| Leverage | No |
|
|
Allowed |
| Short Selling |
|
Up to 25% | Yes |
|
|
|
|
No performance fee |
|
Performance fee |
| Transparency | Daily NAV |
|
|
|
Who Should Consider SIFs?
SIFs may be suitable if you:
- Have ₹10 lakh+ to allocate
- Have a 10+ year horizon
- Already hold core long-only equity funds
- Can tolerate 15–20% volatility
- Want downside protection + alpha
Avoid if you:
- Have a short-term horizon
- Need monthly liquidity
- Are a first-time equity investor
- Expect guaranteed or “safe” returns
SIFs work best as a 10–25% satellite allocation, not as a core portfolio holding.
Taxation
Most SIFs qualify as equity-oriented funds (≥65% equity exposure):
- LTCG (above 1 year): 12.5%
- STCG: 20%
Hybrid structures may follow a 24-month LTCG rule. Always verify the scheme classification.
Risks & Reality Check
Yes, SIFs use derivatives—but within regulated limits.
The risks are not “blow-up” risks; they are:
- Market volatility
- Manager execution risk
- Underperformance in strong bull markets
In roaring bull phases, long-only funds may outperform.
In bear or sideways markets, long-short strategies often cushion losses.
Final Takeaway
SIFs are not magic bullets. They won’t outperform every year.
But they offer:
- Professional long-short management
- Downside cushioning
- Transparent structure
- No leverage
- No performance fees
For HNIs seeking more than traditional mutual funds—but less complexity than PMS or AIFs—SIFs represent a smart middle ground.
The future of investing is not just buy-and-hold—it’s risk-managed and adaptive. SIFs are built for that future.
