What are SIFs? All you need to know about this new investment plan

A new buzz is sweeping through the investment landscape — Specialised Investment Funds or SIFs. Positioned as the bridge between mutual funds and alternative investment strategies, SIFs are emerging as the latest innovation in India’s capital market ecosystem. Designed to offer investors access to both long and short opportunities within a regulated framework, SIFs promise flexibility without compromising transparency.

While mutual funds have been around for decades with their simple structure and strict regulations, SIFs introduce a hybrid element by combining that structure with the flexibility typically found in Alternative Investment Funds (AIFs). While speaking to Business Today, Niranjan Avasthi, Senior Vice President at Edelweiss Mutual Fund, explained, SIFs offer the best of both worlds: the transparency of mutual funds and the flexibility of AIFs.

Unlike traditional mutual funds that can invest only in cash markets such as equity and debt, SIFs are permitted to trade in derivatives—enabling them to take both long and short positions. However, SIFs are not designed for every investor. The minimum investment threshold stands at Rs 10 lakh, placing them in a higher-ticket bracket compared to retail-friendly mutual funds.

The introduction of SIFs is seen as a step toward providing investors with more nuanced tools for asset allocation. Aditya Agarwal, Co-Founder of Wealthy.in, said that in recent years, strong equity market performance has made investors overlook the importance of diversification. Aditya believes SIFs “can bring the concept of asset allocation back to the table,” allowing investors to balance risk and return across time horizons.

For instance, a hybrid long-short SIF could be suitable for investors looking for moderate returns with limited risk. “If I choose an equity hybrid long-short product, I can actually get debt-like returns with debt-like volatility,” Agarwal noted, highlighting that such products could suit those with shorter investment horizons of two to three years.

Avasthi highlighted that Edelweiss Mutual Fund was among the first to launch an SIF through its Altiva Hybrid Long Short Fund. Avasthi said the fund aims to deliver low-risk, tax-efficient returns by using derivatives to manage volatility. “Derivatives can be used to enhance or reduce risk. What we have done is reduce risk closer to fixed income products while maintaining returns comparable to hybrid funds,” he said.

Avasthi added that post-2023, following changes in fixed-income taxation, investors have been actively seeking low-risk, tax-efficient options. “SIFs are filling that gap by offering structures similar to Category III AIFs, but with easier access and better tax efficiency,” Avasthi said.

 

Understanding structure

SIFs are divided into three broad categories — equity, debt, and hybrid — under which seven investment strategies are permitted. In the equity segment, funds can follow diversified, sector rotation, or ex-top 100 strategies, each allowing up to 25 per cent exposure to short positions.

 On the debt side, there are diversified and sectoral long-short options, while the hybrid category includes asset allocator and hybrid long-short strategies.

Taxation clarity

SIFs enjoy a taxation structure largely aligned with mutual funds. “For taxation purposes, SIF units are treated as mutual fund units,” Avasthi explained. Equity-orientated SIFs (with over 65 per cent equity exposure) attract a 12.5 per cent long-term capital gains (LTCG) tax after 12 months, while short-term gains are taxed at 20 per cent. Debt-oriented schemes are taxed as per the investor’s slab, while hybrid funds are taxed depending on their underlying composition.

Despite the growing curiosity, SIFs currently cater more to affluent investors than to Gen Z or first-time investors. “Gen Z investors have high risk-taking ability, but since the minimum investment is Rs 10 lakh, we’re seeing greater traction from those who already have their core SIPs and portfolios in place,” Agarwal said. For such investors, SIFs act as a diversification layer rather than a core holding.

Choosing right SIF

When it comes to selecting an SIF, Agarwal suggested focusing on the fund house’s experience with long-short strategies. “The fund manager’s clarity on product design and their track record in managing long-short portfolios are key indicators,” he said. Since SIFs are still new, historical performance data is limited, making the fund manager’s expertise even more critical.