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TMI BlogRegulatory framework for Specialized Investment Funds (‘SIF’)X X X X Extracts X X X X X X X X Extracts X X X X ..... vehicles become progressively more flexible from Mutual Funds ('MFs') to Portfolio Management Services ('PMS') to Alternative Investment Funds ('AIFs'), in sync with the investment profile and investment size of these products. 3. 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 - Specialized Investment Fund (SIF). The amendment notification is available at link. 4. The comprehensive regulatory framework for the Specialized Investment Fund is provided in Annexure A to this circular. 5. This circular shall come into force with effect from April 01, 2025. 6. AMFI shall issue necessary guidelines/standards as required under this circular by March 31, 2025. 7. The Stock Exchanges, Clearing Corporations and Depositories are directed to: 7.1. take necessary steps and put in place necessary systems for the implementation of this circular; 7.2. make necessary amendments to the relevant bye-laws, rules and regulations, wherever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication for prior approval with SEBI for establishment of an SIF, in the manner as may be specified by SEBI. 2. Branding and advertisement requirements 2.1. In terms of Regulation 49AB(1), the AMC shall ensure that the SIF has distinct identification, separate from that of the Mutual Fund, to maintain clear differentiation between the offerings of the SIF and that of a mutual fund. Further, in terms of Regulation 49AB(2) of the MF Regulations, the AMC shall comply with the provisions relating to branding, advertising, standard disclaimers, guidelines on usage of sponsor or asset management company or mutual fund's brand name, and maintenance of a separate website, as may be specified by the Board from time to time. In this regard, the following has been decided: 2.1.1. In order to clearly differentiate the Specialized Investment Fund and maintain brand integrity of its Mutual Fund business, AMCs shall ensure that the SIF has a distinct brand name and distinct logo, separate from that of its regular Mutual Fund. Provided that, to facilitate the establishment and initial recognition of the SIF's brand, the AMC may use the sponsor's or mutual fund's brand name in the offer doc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in equity through derivative instruments. Daily or any lesser redemption frequency as may be decided by the AMC 2. Equity Ex-Top 100 Long-Short Fund Minimum investment in equity and equity related instruments of stocks excluding top 100 stocks by market capitalization - 65% & Maximum short exposure through unhedged derivative positions in equity and equity related instruments of other than large cap stocks: 25% An open ended/interval investment strategy investing in equity and equity related instruments including limited short exposure in equity through derivative instruments, of stocks other than large cap stocks. Daily or any lesser redemption frequency as may be decided by the AMC 3. Sector Rotation Long-Short Fund Minimum investment in equity and equity related instruments of maximum 4 sectors - 80% Maximum short exposure through unhedged derivative positions in equity and equity related instruments: 25%* *Short exposure shall 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 shor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g-Short Fund Minimum investment in equity and equity related instruments - 25% Minimum investment in debt instruments - 25% Maximum short exposure through unhedged derivative positions in equity and debt instruments: 25% Interval investment strategy investing in equity and debt securities, including limited short exposure in equity and debt through derivatives. Two Times in a week or any lesser redemption frequency as may be decided by AMC 3.3. To avoid proliferation of investment strategies and in line with the approach followed for categorization of MF schemes, only one investment strategy shall be permitted to be launched under each of the aforementioned categories. 4. Minimum investment threshold 4.1. In terms of Regulation 49X(1) of the MF Regulations, the SIF shall not accept from an investor, an investment amount less than ten lakh rupees across all investment strategies in the manner as may be specified by the Board; provided that the requirement of minimum investment amount shall not apply to an accredited investor. In this regard, the following has been decided: 4.1.1. The AMC shall ensure that an aggregate investment by an investor across all inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. 6. Investment in derivatives 6.1. In terms of Regulation 49Z(1) of the MF Regulations, SIF may invest monies collected under any of its investment strategies in instruments permitted under sub-regulation (1) of Regulation 43 of mutual funds schemes, provided that the manner of investment by a SIF may be specified by the Board. In this regard, investment by SIF in eligible derivative products shall be as follows. 6.1.1. The investment strategies under the SIF may take exposure of up to 25% of the net assets in permissible exchange traded derivative instruments, specifically for purposes other than hedging and portfolio rebalancing. Explanation: This provision allows an investment strategy under the SIF to take unhedged short exposure through derivative instruments of up to 25% of net assets, in addition to derivative exposure undertaken for hedging and portfolio rebalancing purposes 6.1.2. In line with the definition of exposure in case of derivative positions for MF, as specified under paragraph 12.25.11.1 of the Master Circular for Mutual Funds dated June 27, 2024, the exposure to derivative contracts for the investment strategies under SIF shall be computed as follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scription 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. 7.1.2. Notice periods: 7.1.2.1. Based on structure of the investment strategy and the liquidity risk associated with it, AMC may implement appropriate notice periods for redemption from the investment strategy of SIF, in the following manner: i. In case of notice period, the redeeming investor shall receive the value of units sold based on the fund's NAV at the end of the notice period. ii. Maximum duration of notice period shall not exceed 15 working days. 8. Listing of units of investment strategies 8.1. To provide an exit option for the redeeming investors, the units of all close ended and interval investment strategies of SIF shall be mandatorily listed on recognized stock exchange(s). 8.2. Investment strategies with subscription and/or redemption frequency other than daily shall be classified as 'Interval investment strategies' for the purpose of SIF. 9. Benchmarking of Investment Strategies 9.1. The investment strategies of SIF shall follow a single- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .3. Risk band level 3 12.2.4. Risk band level 4 12.2.5. Risk band level 5 (Highest Risk) 12.3. The detailed standards regarding Risk-Band including the depiction, evaluation and calculation of risk levels of the Risk-Band shall be issued by AMFI, in consultation with SEBI, on or before March 31, 2025. 12.4. Based on the scheme characteristics, SIF shall assign risk level for schemes at the time of launch of New Fund Offer of the investment strategy. 12.5. Any change in risk band shall be communicated by way of Notice cum Addendum and by way of an e-mail or SMS to unitholders of that particular investment strategy. 12.6. Risk-band shall be evaluated on a monthly basis and SIF/AMCs shall disclose the risk-band for all their investment strategies on their respective websites and on website of AMFI within 10 days from the close of each month. 12.7. SIFs shall disclose the risk level of investment strategies as on March 31st of every year, along with number of times the risk level has changed over the year, on their websites and AMFI website. 13. Disclosure requirements 13.1. Portfolio disclosure: The SIF shall disclose portfolio (along with ISIN), including derivative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evel across multiple securities Maximum 25% of unhedged short exposure INR 25 crore - XYZ Call option 2500 long position Max 20% exposure (ref. 12.25.2 of Master Circular for Mutual Funds) Exposure to single stock <= 10% of investment strategy INR 10 crore 2222 contracts = 10 crore / (90 * 500) XYZ Call option 2500 short position Max 20% exposure (ref. 12.25.2 of Master Circular for Mutual Funds) Exposure to single stock <= 10% of investment strategy INR 10 crore 80 contracts = 10 crore / (2500 * 500) B) Illustration on portfolio composition: The following examples illustrates possible usage of derivatives for portfolio construction of the investment strategy: Example 1 Example 2 Investment Details Amount (Total: INR 100 crore) Investment Details Amount (Total: INR 100 crore) Investment in EQ INR 70 crore Investment in EQ INR 62.5 crore Cash holding INR 5 crore Investment in EQ Long Futures & Long options INR 10 crore Short exposure using stock/index futures INR 25 crore Cash holding INR 2.5 crore Short exposure using stock/index futures INR 25 crore* *Since unhedged short exposure of upto 25% is ..... 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