Specialized Investment Funds (SIFs) in India: The Definitive Guide for Serious Investors (2026)

India's mutual fund industry just crossed ₹80 lakh crore in AUM. Portfolio Management Services require ₹50 lakh to walk through the door. Alternative Investment Funds start at ₹1 crore. For a growing cohort of investors — affluent, informed, but not ultra-HNI — there was no regulated product that offered sophisticated strategies without either the constraints of a mutual fund or the entry barriers of PMS and AIF.

Until now.

In February 2025, SEBI introduced Specialized Investment Funds (SIFs) — a new category under the mutual fund regulations that allows asset management companies to offer long-short strategies, derivatives-based hedging, sector rotation, and dynamic asset allocation, all within a pooled, regulated structure with a minimum investment of just ₹10 lakh.

Less than a year after the first SIF launched, the category has already crossed ₹6,500 crore in AUM. Thirteen fund houses have received approvals. Hybrid long-short funds alone account for 84% of SIF assets. And the average folio size — ₹32.8 lakh — confirms exactly who's buying: high-net-worth individuals, family offices, and informed investors who understand what they're getting into.

This piece covers everything — the structure, the regulation, the strategy types, the taxation, the competitive landscape, the risks, and what it all means for your portfolio — in the same data-driven, plain-language approach we've taken with our guides on Gold and REITs & InvITs.

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Let's get into SIF.

Part 1: What Exactly Is a SIF?

A Specialized Investment Fund is a distinct investment product category created under the SEBI (Mutual Funds) Regulations, 1996, via the Third Amendment in December 2024. The full regulatory framework was operationalised through SEBI Circular No. SEBI/HO/IMD/IMD-PoD-1/P/CIR/2025/26 dated February 27, 2025, effective April 1, 2025.

The simplest way to understand a SIF: it's a mutual fund with the toolkit of a hedge fund, but within a regulated, transparent, SEBI-supervised framework. Think of it as what happens when you give a mutual fund manager the ability to go short, use derivatives tactically, rotate across asset classes dynamically, and construct strategy-driven portfolios — while keeping the pooled structure, daily NAV computation, and taxation benefits of a mutual fund intact.

Here's where SIFs sit in India's investment product spectrum:

Source: SEBI circulars, SEBI (MF) Regulations 1996, SEBI (PMS) Regulations 2020, SEBI (AIF) Regulations 2012

The critical insight: SIFs inherit the tax treatment of mutual funds — not PMS, not AIF. This is the single biggest advantage. A Category III AIF pays tax at the fund level at maximum marginal rate (~42.74%). A PMS investor generates direct capital gains on every trade. A SIF investor? Same rules as a mutual fund — equity-oriented SIFs get LTCG at 12.5% after 12 months, STCG at 20%. No fund-level taxation. No pass-through complexity. This alone makes SIFs structurally superior to Cat III AIFs for many strategies.

Part 2: The Regulatory Architecture — How SEBI Built This

SEBI didn't rush SIFs to market. The framework reflects nearly two years of deliberation, including a consultation paper, board approvals, and industry feedback. Here's the regulatory timeline:

Source: SEBI circulars, AMFI, Business Standard, BusinessToday, Cafemutual, ValueMetrics Technologies

Two regulatory design choices are worth highlighting:

Distinct branding is mandatory. SEBI requires every AMC to create a separate brand identity for its SIF operations — Altiva (Edelweiss), qSIF (Quant), Magnum SIF (SBI), Arudha (Bandhan), Dyna SIF (360 ONE), Titanium SIF (Tata), Divinity SIF (ITI), iSIF (ICICI Prudential). This isn't cosmetic. SEBI wants to ensure investors don't confuse SIF strategies — which carry meaningfully higher risk — with the AMC's regular mutual fund offerings. It's a mis-selling prevention mechanism.

Distributor certification is elevated. AMCs must ensure that every distributor selling SIF products holds the NISM Series-XIII: Common Derivatives Certification, in addition to standard MF distributor qualifications. SEBI is explicitly saying: if you're going to sell a product that uses derivatives and short positions, you'd better understand what you're selling.

Part 3: AMC Eligibility — Not Everyone Can Launch a SIF

SEBI has set a high bar for which AMCs can offer SIFs. There are two qualification routes:

Source: SEBI (Mutual Funds) Third Amendment Regulations 2024, SEBI Circular Feb 27, 2025

This dual-route approach is classic SEBI pragmatism. Route 1 ensures only established players with scale and track record can offer SIFs. Route 2 creates an entry path for smaller, more agile AMCs — provided they hire the right talent. The net effect is that the SIF universe is neither dominated by legacy players nor overrun by unproven newcomers.

Part 4: The Strategy Menu — What SIFs Can Actually Do

SEBI has prescribed a specific set of permitted strategies, organised into three broad categories. Crucially, each AMC can launch only one strategy per sub-category — preventing the kind of scheme proliferation that plagues the regular mutual fund universe.

Equity-Oriented Strategies

Debt-Oriented Strategies

Hybrid Strategies

Source: SEBI Circular Feb 27, 2025; SEBI clarificatory circular Apr 9, 2025

A few points worth flagging:

The 25% short exposure cap is meaningful but not aggressive. Global long-short funds routinely run 30–50% gross short books. SEBI's 25% cap ensures that SIFs can hedge and express bearish views, but can't become full-blown hedge funds. This is intentional. SEBI is watching how fund managers use even this limited flexibility before potentially expanding it.

The "cumulative gross exposure" cannot exceed 100% of net assets. This is a critical guardrail. A SIF can't lever up beyond its asset base. Total of all long positions, short positions, derivatives, repo, and other exposures must stay at or below NAV. No hidden leverage.

Hybrid long-short is the runaway winner so far. Four of the first seven launched SIFs are hybrid long-short. As of January 2026, hybrid strategies account for 84% of total SIF AUM and 83% of cumulative net inflows. The reason is straightforward: hybrid long-short gives fund managers the widest toolkit — they can dynamically shift between equity, debt, arbitrage, and derivatives based on market conditions, making it the most versatile all-weather strategy available.

Part 5: Who's in the Game — The SIF Landscape

As of February 2026, the SIF universe looks like this:

Source: Cafemutual, Business Standard, SEBI filings, AMC websites. Data as of Feb 2026

Axis MF and Franklin Templeton have reportedly applied for SIF licences and are awaiting approval. When HDFC, ICICI Prudential, and Kotak launch their SIF schemes — which is expected in H1 2026 — the AUM of the category could grow substantially, given their massive existing distribution networks and brand equity.

Part 6: Taxation — The SIF Advantage

This is where SIFs genuinely shine versus PMS and AIF. Since SIFs are classified under the mutual fund trust structure, they enjoy the same tax treatment as mutual funds — which is significantly more favourable than PMS (where each trade generates individual capital gains) or Category III AIF (where all gains are taxed at the fund level at maximum marginal rate).

Source: Income Tax Act, SEBI frameworks. Rates for FY 2025-26. Surcharge and cess additional. Post Budget July 2024 changes.

The numbers tell the story. If you're a 30% slab investor with ₹50 lakh in a long-short equity strategy:

In a PMS: Every profitable trade generates STCG at 20% or LTCG at 12.5%, plus F&O income is taxed as business income at your slab rate. Active churning amplifies the tax drag. You also need to file a much more complex ITR with trade-by-trade reporting.

In a Category III AIF: All gains — short-term, long-term, derivatives — are taxed at the fund level at maximum marginal rate (~42.74% including surcharge and cess). This is the harshest tax treatment of any regulated investment product in India. Even if the fund generates only long-term equity gains that would normally attract 12.5% tax, it pays 42.74%.

In a SIF: If the strategy is equity-oriented (≥65% in equity), you pay 20% STCG and 12.5% LTCG — exactly like a regular equity mutual fund. The fund's internal trading doesn't trigger tax events for you. You only pay tax when you redeem. This alone can result in 5–10% higher post-tax returns over a 5-year period versus an equivalent Cat III AIF strategy.

Part 7: The ₹10 Lakh Threshold — Rules That Matter

The minimum investment mechanism has some nuances that every SIF investor should understand:

₹10 lakh is calculated at PAN level, per AMC. If you invest in multiple SIF strategies under qSIF (Quant), your total across all qSIF strategies must be ≥ ₹10 lakh. Your investments in Quant's regular mutual fund schemes don't count towards this threshold. And your investments in Altiva SIF (Edelweiss) are a separate calculation — you need ₹10 lakh there too, if you choose to invest.

SIP is allowed, but the threshold must be met. AMCs can offer SIP, STP, and SWP for SIF strategies, provided the investor's cumulative investment across all SIF strategies of that AMC meets or exceeds ₹10 lakh. This is a practical feature for investors who want to build positions over time.

Active breach vs. passive breach matters. If your SIF portfolio drops below ₹10 lakh due to market decline (passive breach), you're fine — no action required. But if it drops below ₹10 lakh because you actively redeemed or transferred units (active breach), the AMC will freeze your units and give you 30 days to top up. If you don't, all units are compulsorily redeemed.

Accredited investors are exempt. If you qualify as an accredited investor under SEBI's framework (annual income ≥ ₹2 crore or net worth ≥ ₹7.5 crore excluding primary residence), the ₹10 lakh minimum doesn't apply.

Part 8: The Elephant in the Room — Will Fund Managers Actually Short?

This is the question that separates SIF hype from SIF reality.

SEBI has capped the maximum unhedged short exposure at 25% of AUM. But it hasn't prescribed a minimum short threshold. This means a fund house could technically launch an "Equity Long-Short Fund," maintain 80% long equity positions, and never take a meaningful short position — running it as a long-only fund with a fancier label.

The scepticism is well-founded. Category III AIFs in India have had the flexibility to go short for years — with no cap on short exposure. Yet very few have built genuinely active short books. The Indian market's structural long bias, the difficulty of timing shorts in an economy growing at 6-7%, and the reputational risk of public short positions have all constrained short-selling in practice.

The counterargument: SIFs are pooled vehicles (like mutual funds), not individually managed accounts (like PMS). This anonymity actually helps — a SIF short position doesn't get attributed to a specific client, reducing the social and corporate-relationship friction that hampers shorting in PMS.

What to watch for: Check each SIF's monthly portfolio disclosure. If a fund labelled "Long-Short" consistently shows zero or negligible short positions, it's just a long-only fund with higher fees and lower liquidity. SEBI's mandated disclosure framework — including the Investment Strategy Information Document (ISID) and monthly portfolios — gives investors the tools to verify whether a SIF is delivering on its stated mandate.

Part 9: The Evaluation Framework — What to Look for Before Investing

SIFs are too new for traditional track-record analysis. There are no 3-year or 5-year returns to compare. But there's still a rigorous way to evaluate them:

Source: SEBI SIF framework, ISID requirements, industry analysis

Part 10: The Portfolio Role — Where Does a SIF Fit?

SIFs are not replacements for mutual funds. They're complements. And they're certainly not for everyone.

The natural SIF investor has three characteristics: enough capital (₹10 lakh minimum is real money), enough understanding of derivatives and short-selling to know what the strategy is doing, and enough patience to let a long-short strategy play out over 2–5 years rather than judging it quarterly.

Within a portfolio, SIFs can serve specific roles:

Downside protection. A hybrid long-short SIF that maintains 25–35% in hedged or market-neutral equity positions can meaningfully reduce drawdowns during corrections. Bandhan's Arudha SIF, for instance, plans to maintain a minimum 35% in fully hedged, market-neutral equity positions with the rest in short-to-medium-term debt. This is structurally designed to blunt downside — something a long-only equity fund simply cannot do.

Alpha from short positions. In a market where the Nifty 50 is at 22,000+, valuation-rich sectors and overpriced stocks exist. A fund manager who can short overvalued positions — even at just 10–15% of the book — creates a return stream that's uncorrelated with market direction. This is genuinely additive to portfolio diversification.

Tax-efficient alternative to Cat III AIF. If you're currently in or considering a Category III AIF for long-short or hedged strategies, the SIF structure offers nearly identical investment flexibility with dramatically better tax treatment. The math isn't close.

A reasonable SIF allocation for a portfolio above ₹50 lakh might be 10–20%, depending on risk tolerance and the specific SIF strategy chosen. It should come from your equity + alternatives allocation, not from your fixed-income bucket (unless you're choosing a debt long-short SIF).

Part 11: Five Risks to Watch

1. Strategy execution risk. Long-short investing requires a fundamentally different skill set than long-only fund management. Indian AMCs have limited institutional experience with active short-selling. The first generation of SIF fund managers are, in many cases, building this capability from scratch. Some will be better at it than others.

2. The "long-only in disguise" risk. As discussed, SEBI doesn't mandate a minimum short position. Some SIFs may market themselves as long-short but operate as de facto long-only funds. This means you're paying SIF-level fees and accepting SIF-level liquidity constraints for what is essentially a regular equity mutual fund.

3. Liquidity constraints. Many SIF strategies are structured as interval funds with weekly or twice-weekly redemption. Some require 15 working-day advance notice for redemption. If you need money quickly, a SIF may not deliver it. Unlike a liquid or equity mutual fund where you can sell today and get proceeds in T+2, a SIF may take weeks.

4. Derivatives amplification. A 25% short book that moves against the fund adds to losses, not just from the short position itself but from the opportunity cost of capital deployed as margin. In a sharp market rally where all shorts go wrong simultaneously, losses can compound faster than in a long-only fund.

5. Early-stage category risk. The entire SIF category is under a year old. There are no 3-year returns, no established performance benchmarks, and limited institutional knowledge about how these strategies will behave through a full market cycle. Early adopters are, by definition, taking a leap of faith on the category itself.

Part 12: What's Coming Next

More launches, rapidly. HDFC MF, ICICI Prudential, Kotak, DSP, and Mirae Asset all have SIF licences but haven't launched schemes yet. When India's three largest AMCs by AUM enter the SIF market — likely in H1 2026 — the category's visibility and asset base could grow substantially. Industry estimates suggest SIF AUM could reach ₹15,000–25,000 crore by end of 2026.

Debt and sector rotation strategies will follow. The current SIF universe is dominated by hybrid long-short. But as interest rate cycles create opportunities, debt long-short SIFs will find their moment. Sector rotation strategies — which allow concentrated bets on up to 4 sectors with the ability to short lagging sectors — could attract investors with strong sectoral views.

Performance data will create differentiation. By late 2026, the earliest SIFs will have 12+ months of track record. Investors and advisors will be able to compare risk-adjusted returns, actual short exposure deployed, drawdown behaviour, and expense ratios across AMCs. The wheat will separate from the chaff.

SEBI may expand the short exposure cap. If the first year of SIF operations goes smoothly — no blow-ups, no mis-selling scandals, no liquidity crises — SEBI may consider relaxing the 25% unhedged short cap. This would make SIFs genuinely competitive with global long-short funds and Cat III AIFs.

Distribution partnerships will expand access. Currently, SIF distribution requires the NISM Series-XIII certification, which limits the pool of eligible distributors. As more distributors get certified and platforms integrate SIF products, access will widen beyond the current AMC-direct and IFA channels.

The Bottom Line

Specialized Investment Funds are the most significant structural innovation in India's investment product landscape since the introduction of AIFs in 2012. They solve a genuine problem — the absence of a regulated, tax-efficient, pooled vehicle for sophisticated strategies between ₹10 lakh and ₹50 lakh.

But let's be precise about what SIFs are and aren't.

They are: a legitimate tool for informed investors who want long-short exposure, derivative hedging, and dynamic asset allocation within a regulated, transparent, mutual-fund-tax-advantaged structure.

They aren't: a way to generate guaranteed returns, a shortcut to beating the market, or an appropriate product for anyone who can't explain what a short position is or how derivatives work.

The ₹6,500 crore of assets gathered in under a year, the 84% concentration in hybrid strategies, and the ₹32.8 lakh average folio size all tell us the same thing: the right investors are finding the right product. HNIs and family offices who previously had to choose between the constraints of mutual funds and the tax brutality of Cat III AIFs now have a third option that's genuinely better than either for many use cases.

The category is young. The risks are real. The performance data doesn't exist yet. But the structural advantages — particularly on taxation — are undeniable. For investors with the capital, the understanding, and the patience, SIFs deserve serious evaluation.

As always, the smart approach is to understand the plumbing before you turn on the taps.

Disclaimer: This article is for educational and informational purposes only. It does not constitute investment advice, a recommendation, or an offer to buy or sell any securities or investment products. Specialized Investment Funds carry market risk, derivatives risk, strategy execution risk, and liquidity risk. Past performance of underlying strategies is not indicative of future returns. SIFs are suitable only for investors who understand derivatives and can bear the risk of potential losses. Investors should consult a SEBI-registered investment advisor before making investment decisions. Grey Sky Capital Private Limited (SEBI Registration: INP000009694) is a SEBI-registered Portfolio Management Service provider. The views expressed here are those of the author and do not constitute a solicitation to invest in any specific SIF, mutual fund, or PMS strategy.

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