Under the new framework, investors are required to make a minimum investment of ₹10 lakh across all SIF strategies. However, this rule does not apply to accredited investors. For those using systematic investment plans (SIP), systematic withdrawal plans (SWP), or systematic transfer plans (STP), the total investments must remain above ₹10 lakh. If the value falls below this threshold due to market fluctuations, investors will be able to redeem the full remaining amount.
The framework places limits on the investment in company debt securities, with investors restricted to 20% for AAA-rated, 16% for AA-rated, and 12% for A-rated or below debt securities from any one company. Additionally, no more than 25% of the net asset value (NAV) can be invested in a single sector.
Eligibility for setting up SIFs
To establish an SIF, a registered mutual fund must meet one of two eligibility routes. The first requires the mutual fund to have been operational for at least three years with an average asset under management (AUM) of ₹10,000 crore over the last three years, and no action against the sponsor or AMC in the past three years.
The second route mandates the mutual fund to appoint a Chief Investment Officer (CIO) with a minimum of 10 years of fund management experience and an average AUM of ₹5,000 crore. Additionally, an extra Fund Manager with at least three years of experience and an AUM of ₹500 crore is required.
SEBI also emphasised that no action should have been taken or initiated against the sponsor or AMC in the past three years. Furthermore, mutual funds must apply for SEBI’s prior approval before establishing an SIF.
Investment and risk guidelines for SIFs
SIFs will be allowed to take up to 25% exposure in derivatives, excluding hedging activities. Offsetting of derivative positions on the same security will also be allowed in certain cases. Funds will have different subscription (buy-in) and redemption (withdrawal) frequencies, with redemptions requiring a notice period of up to 15 working days.
Closed-ended and interval funds must be listed on stock exchanges, with funds featuring non-daily redemption considered “Interval Investment Strategies”. SIFs will adhere to a single-tier benchmark such as Nifty50 for equity and debt indices for debt funds. Additionally, risk will be categorised into five levels (Risk Band 1 to 5), reviewed monthly.
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Sales and disclosure requirements
SEBI has stipulated that only certified distributors will be permitted to sell SIFs. SIFs will be required to disclose portfolio details, liquidity risks, and scenario analysis on their websites regularly. Additionally, any advertisement promoting SIFs must include a standard risk disclaimer.
These regulatory amendments provide a framework designed to offer greater flexibility to investors while ensuring comprehensive risk management and transparency in the evolving investment landscape.
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