Description

SEBI introduces regulatory framework for Specialized Investment Funds (SIF), a new investment product bridging the gap between Mutual Funds and PMS, effective April 1, 2025.

Summary

SEBI has issued SEBI/HO/IMD/IMD-PoD-1/P/CIR/2025/26 dated February 27, 2025, introducing the regulatory framework for Specialized Investment Funds (SIF), a new investment product designed to bridge the gap between Mutual Funds and Portfolio Management Services. The framework amends SEBI (Mutual Funds) Regulations, 1996 to create a new investment vehicle with greater portfolio flexibility than traditional mutual funds, targeting investors between retail MF and high-net-worth PMS segments.

Key Points

  • New investment product category called Specialized Investment Fund (SIF) introduced under Chapter VI-C of SEBI (Mutual Funds) Regulations, 1996
  • SIF bridges the gap between Mutual Funds and Portfolio Management Services with progressive portfolio flexibility
  • Only registered mutual funds meeting specific eligibility criteria can establish SIF
  • Two routes for eligibility: Route 1 requires 3 years operation with average AUM of INR 10,000 crores minimum
  • SEBI has adopted risk-based segmented approach with flexibility increasing from MFs to PMS to AIFs
  • Stock Exchanges, Clearing Corporations and Depositories must implement necessary systems
  • AMFI to issue necessary guidelines and standards

Regulatory Changes

  • Amendment to SEBI (Mutual Funds) Regulations, 1996 introducing new Chapter VI-C for SIF framework
  • New Regulation 49W(1) allows registered mutual funds to establish SIF subject to eligibility criteria
  • Comprehensive regulatory framework provided in Annexure A covering eligibility criteria
  • Eligibility Route 1 requirements: minimum 3 years operation, average AUM of INR 10,000 crores in preceding 3 years, and no enforcement actions against sponsor/AMC
  • Progressive regulatory flexibility model established across MF-SIF-PMS-AIF spectrum based on investor sophistication and investment size

Compliance Requirements

  • All Mutual Funds and AMCs must review eligibility criteria if considering SIF establishment
  • Trustee Companies/Board of Trustees must ensure compliance with new framework
  • Stock Exchanges, Clearing Corporations and Depositories must: (a) implement necessary systems, (b) amend relevant bye-laws, rules and regulations, (c) notify market participants and publish on websites
  • AMFI must issue necessary guidelines/standards by March 31, 2025
  • RTAs must prepare for new product processing requirements
  • Mutual funds meeting eligibility must apply for approval under Regulation 49W(1) to establish SIF

Important Dates

  • February 27, 2025: SEBI circular issued (SEBI/HO/IMD/IMD-PoD-1/P/CIR/2025/26)
  • March 31, 2025: Deadline for AMFI to issue necessary guidelines/standards
  • April 1, 2025: Circular comes into force (effective date for SIF framework implementation)

Impact Assessment

Market Impact: High - Creates entirely new investment product category expanding the Indian investment management landscape. Fills identified gap between mutual funds and PMS, potentially attracting investors seeking more flexibility than MFs but not requiring full PMS sophistication. Expected to increase competition and product innovation in asset management industry.

Operational Impact: High - Requires significant system development and regulatory implementation by stock exchanges, clearing corporations, depositories, and AMCs. Market infrastructure participants must modify systems, processes and bye-laws to accommodate new product type.

Regulatory Impact: High - Establishes new regulatory segment with distinct framework, representing evolution of risk-based segmented regulation approach. Sets precedent for intermediate product categories addressing market gaps.

Investor Impact: Medium to High - Provides new investment avenue for investors seeking portfolio flexibility beyond traditional mutual funds. Target segment appears to be investors between retail MF investors and high-net-worth PMS clients. Expands investment options with varying risk-reward profiles.

Industry Impact: High - Only established mutual funds with substantial AUM (INR 10,000 crores average) and clean track record can establish SIF, potentially creating competitive advantage for larger, well-established fund houses. May drive industry consolidation or partnerships.

Impact Justification

Introduction of new investment product category with comprehensive regulatory framework affecting all mutual funds, AMCs, and market infrastructure. Represents significant evolution in investment management landscape.