SEBI lays down regulatory standards for SIFs

On 25-2-2025, the Securities and Exchange Board of India issued a circular on Regulatory Standards for Specialized Investment Funds to regulate the products depending on their complexity, sophistication of target investors, minimum investment size, etc. The provisions will come into force 1-4-2025.

Applicability:

1. All Mutual Funds;

2. All Asset Management Companies (‘AMC’);

3. All Trustee Companies/ Board of Trustees of Mutual Funds;

4. All Registrar and Share Transfer Agents;

5. All Recognized Stock Exchanges;

6. All Recognized Clearing Corporations;

7. All Depositories;

8. Association of Mutual Funds in India (‘AMFI’)

Key Points:

1. AMFI will issue necessary guidelines/standards by 31-3-2025.

2. Eligibility criteria for Specialized Investment Fund:

   • Route 1- Sound Track Record:

     • Mutual Fund has been in operation for a minimum period of 3 years and has an average asset under management (‘AUM’) of not less than Rs. 10000 crores, in the immediately preceding 3 years.

     • No action has been initiated or taken against the sponsor/asset management company during the last 3 years.

   • Route 2- Alternate route:

     • AMC has appointed:

       • A Chief Investment Officer for the SIF with experience of fund management of at least 10 years and has managed an average AUM of not less than Rs. 5,000 crores.

       • An additional Fund Manager for the SIF with experience of fund management of at least 3 years and has managed an average AUM of not less than Rs. 500 crores

     • No action has been initiated or taken against the sponsor/AMC during the last 3 years.

   • AMC can share resources for operations across mutual fund and SIF.

   • A registered Mutual Fund will file an application for prior approval with SEBI for establishment of an SIF.

3. Branding and advertisement requirements:

   • AMC will have to ensure that the SIF has a 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.

   • AMC will have to 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.

   • AMC will have to ensure that the SIF has a distinct brand name and distinct logo, separate from that of its regular Mutual Fund.

   • When referring to the sponsor’s or mutual fund’s brand name for SIF, the AMC will have to use phrases such as “brought to you by,” “offered by,” or similar terms.

   • The font size of the sponsor’s or Mutual Fund’s brand name in all offer documents, marketing, and promotional materials will be equal to or smaller than the font size of the SIF’s brand name.

   • The AMC will have to adhere to the advertisement guidelines applicable to Mutual Fund schemes for all investment strategies offered under the SIF.

   • The AMC will have to maintain a separate website or dedicated webpage exclusively for the SIF, ensuring clear differentiation between the SIF’s offerings and the regular Mutual Fund offerings.

4. Investment strategies permitted to be launched under SIF:

   • Equity Oriented Investment Strategies;

   • Debt Oriented Investment Strategies;

   • Hybrid Investment Strategies.

5. Minimum Investment threshold:

   • SIF will not accept an investment amount less than Rs. 10000 across all investment strategies.

   • The requirement of minimum investment will not apply to an accredited investor.

6. Notice Period:

   • The notice period will be based on investment strategy and the liquidity risk associated with it.

   • The maximum duration cannot exceed 15 working days.

7. AMC will have to ensure that the product has passed the National Institute of Securities Markets Series-XIII: Common Derivatives Certification Examination.

8. Disclosure in offer documents to make sure that the investors and unit holders take an informed decision:

   • Redemption and subscription frequency of the investment strategy;

   • Notice period of the investment strategy, if any;

   • Frequency of portfolio disclosure;

   • Scenario analysis for derivative positions;

   • Disclosures regarding investment in derivatives along with the maximum limit on investment in derivatives for other than hedging and portfolio rebalancing exposure;

   • Disclosure of liquidity risk management tools and its applicability.

9. Risk Band- potential risk associated with the investment strategies of SIF will be depicted a pictorial risk meter having 5 levels of risks:

   • Risk band level 1 (Lowest risk);

   • Risk band level 2;

   • Risk band level 3;

   • Risk band level 4;

   • Risk band level 5 (Highest Risk).

   AMFI will have to issue detailed standards regarding Risk-Band including the depiction, evaluation and calculation of risk levels of the Risk-Band on or before 31-3-2025.

10. Discloure requirements:

    • Portfolio disclosure;

    • Scenario analysis;

    • Offer documents;

    • Standard disclaimer.