SEBI issues Circular on Regulatory framework for Specialized Investment Funds [Read Circular]

The Securities and Exchange Board of India (SEBI) has issued a circular on the regulatory framework for Specialized Investment Funds (SIFs) through an amendment to the SEBI (Mutual Funds) Regulations, 1996. 

India’s investment management sector has witnessed significant growth, with investment vehicles catering to retail, high-net-worth, and institutional investors. SEBI’s regulatory structure ensures a progressive increase in flexibility, moving from Mutual Funds (MFs) to Portfolio Management Services (PMS) and Alternative Investment Funds (AIFs). However, a gap has been identified between MFs and PMS in terms of portfolio flexibility, necessitating the introduction of SIFs as a new category of investment products.

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The circular, effective from April 1, 2025, states a comprehensive regulatory framework for SIFs, detailed in Annexure A. Additionally, the Association of Mutual Funds in India (AMFI) has been tasked with issuing relevant guidelines and standards by March 31, 2025. Market infrastructure institutions, including stock exchanges, clearing corporations, and depositories, have been directed to implement necessary amendments to their regulations and ensure widespread dissemination of the circular’s provisions.

As per Annexure A of SEBI’s circular, the eligibility criteria for establishing a Specialized Investment Fund (SIF) are outlined under Regulation 49W(1) of the SEBI (Mutual Funds) Regulations, 1996. A mutual fund registered under Regulation 9 may seek approval to establish an SIF, subject to SEBI’s specified conditions. The eligibility criteria can be met through two routes.

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Under Route 1 – Sound Track Record, a mutual fund must have been in operation for at least three years with an average Asset Under Management (AUM) of no less than INR 10,000 crores in the immediately preceding three years. Additionally, there should be no regulatory action initiated or taken against the sponsor or the Asset Management Company (AMC) under Sections 11, 11B, or 24 of the SEBI Act, 1992, in the last three years.

Alternatively, under Route 2 – Alternate Route, the AMC must appoint a Chief Investment Officer (CIO) with a minimum of 10 years of fund management experience and an average AUM of no less than INR 5,000 crores. Additionally, an extra fund manager with at least three years of experience and an average AUM of no less than INR 500 crores must also be appointed. Similar to Route 1, no regulatory action under Sections 11, 11B, or 24 of the SEBI Act, 1992, should have been initiated against the sponsor or AMC in the last three years.

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Furthermore, AMCs are permitted to share operational resources between their mutual fund operations and the SIF. To establish an SIF, a registered mutual fund must submit an application for prior approval to SEBI, following the procedure specified by the regulator.

The annexure also details the investment strategies, minimum investment threshold, Breach of minimum investment threshold, Restriction on investments, Investment in derivatives..etc. 

To Read the full text of the Circular CLICK HERE

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