Specialised Investment Funds (SIFs): What Investors Should Know Before Investing

Specialised Investment Funds (SIFs) are the newest entrant in India’s investment landscape. Marketed as a “best of both worlds” option between mutual funds and alternative investment funds, SIFs promise professional management, flexibility, and tactical tools like derivatives.

But the hype around SIFs can be misleading. Some sales narratives portray them as magical products that provide both downside protection and higher returns, a combination that simply does not exist in real-world investing.
This page helps you cut through the noise with a clear, actionable perspective on whether SIFs make sense for your portfolio.

What are SIFs?

Specialised Investment Funds (SIFs) are SEBI-regulated investment vehicles that combine features of mutual funds and alternative investment funds. They can take both long and short positions (using derivatives), offer more flexibility than mutual funds, and are more accessible than traditional PMS or Category III AIFs. With a minimum entry point of ₹10 lakhs, they are designed primarily for sophisticated investors seeking tactical allocation options.

MF vs PMS vs AIF vs SIF

Each investment product comes with its own structure, entry barriers, and trade-offs. Here’s how they differ in simple terms:

Mutual Funds (MFs): Designed for the everyday investor. They follow long-only strategies, typically keep a small cash buffer (5–10%), and are known for high transparency, daily liquidity, low costs, and strong long-term compounding potential.

Portfolio Management Services (PMS): Suited for high-net-worth investors with a minimum entry of ₹50 lakh. PMS can use hedging strategies but usually offer only moderate transparency, limited liquidity, and higher costs. Over time, many PMS schemes have underperformed mutual funds.

Category III AIFs: High-entry products (₹1 crore minimum) that actively use derivatives for long-short strategies. These come with low transparency, high fees, and limited liquidity. Their performance track record has been inconsistent, often failing to deliver reliable alpha.

Specialised Investment Funds (SIFs): A newer option that allows tactical long-short strategies with derivatives. With a ₹10 lakh entry point, SIFs aim to balance flexibility and accessibility, offering moderate-to-high transparency and weekly or longer redemption cycles. They are too new to judge conclusively but are positioned for tactical use rather than as a core portfolio foundation.

Comparison Table

Who Should Invest in SIFs

SIFs are not for everyone. But in the right context, they can serve a purpose:

Reducing volatility: The use of derivatives can help limit downside during market downturns.

Tactical allocation: Consider limiting SIFs to 10–20% of your overall portfolio to avoid diluting long-term returns.

Large portfolios only: Because of the ₹10 lakh minimum, SIFs fit better into larger portfolios. For example, in a ₹60 lakh portfolio, one SIF allocation of ₹10 lakh would account for ~15% — a manageable portion. But in smaller portfolios, the same investment could dominate your allocation and increase risk.

Preserving wealth vs. creating wealth: If your objective is wealth creation and you can ride out volatility, mutual funds have historically delivered better results. If your focus is wealth preservation, SIFs can add a layer of protection.

Who Should Avoid SIFs

1. If your focus is long-term wealth creation, mutual funds and SIPs are simpler, proven tools.

2. If you are easily influenced by short-term volatility, SIFs’ complexity may mislead rather than help.

3. If your portfolio size is small, SIFs may overweight your allocation and increase risk unnecessarily.

Take Your Time Before Jumping In

SIFs are still new and complicated, especially because of their use of derivatives. Like with any new product, there will be plenty of buzz and excitement, but that doesn’t mean you need to jump in right away. It’s better to step back, observe how these funds shape up, and see if they genuinely align with your goals. Give yourself the space to evaluate carefully before making a decision. In the long run, it’s patience and discipline, not rushing into hype, that usually help investors come out ahead.

Can SIFs Add Value to Your Portfolio?

SIF Decision Checklist

Use this quick checklist to decide if a Specialised Investment Fund (SIF) fits your portfolio.

• Portfolio size: Is your equity portfolio ≥ ₹60–70 lakh (so a ₹10 lakh SIF does not dominate your allocation)?
• Objective: Are you prioritising wealth preservation/volatility management over maximum long-term growth?
• Allocation discipline: Will you cap SIFs at ~10–20% of your total portfolio?
• Time horizon: Can you remain invested for 7–10+ years with limited redemption frequency?
• Risk tolerance: Are you comfortable with derivatives-driven long–short strategies and their complexity?
• Process fit: Does the SIF align with your written financial plan and goals?
• Behaviour: Can you avoid reacting to short-term performance/hype and stick to the plan?
• Alternatives considered: Have you compared against goal-based SIPs in mutual funds for core wealth creation?
• Costs & taxes: Do you understand fees, expense caps, and taxation versus MFs/PMS/AIF?
• Documentation: Have you read the offer document, strategy risk band, and redemption rules carefully?

Conclusion

Specialised Investment Funds (SIFs) are neither a scam nor a silver bullet. They are sophisticated tools that can reduce volatility and offer tactical diversification, but only when used in moderation, and by investors with the right risk appetite and portfolio size.

For most investors, the foundation of wealth creation remains simple: goal-based investing through mutual funds and SIPs, supported by expert guidance and behavioural discipline.

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