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SEBI Sets Minimum Investment of ₹10 lakh For Specialised Investment Funds

Updated on: Dec 18, 2024, 3:36 PM IST
SEBI has established a minimum investment threshold of ₹10 lakh for investing in Specialised Investment Funds.
SEBI Sets Minimum Investment of ₹10 lakh For Specialised Investment Funds
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The capital market regulator, the Securities and Exchange Board of India (SEBI), has established a minimum investment threshold of ₹10 lakh for investing in Specialised Investment Funds (SIFs), a new asset class designed to allow mutual funds to offer advanced investment strategies.

However, accredited investors are exempt from this minimum investment requirement, according to SEBI’s framework for SIFs introduced on Tuesday.

Under the new framework, mutual funds can offer investment strategies in open-ended, close-ended, or interval structures within SIFs. This flexibility enables them to cater to a diverse range of investors, each with varying risk appetites and investment horizons. For investors, SIFs offer an opportunity to diversify their portfolios while participating in a structured and transparent investment environment.

Investment Strategy Launch and Regulation

The process for launching new investment strategies within SIFs will follow the same procedures as those for mutual fund schemes. These strategies can take the form of open-ended, close-ended, or interval structures, with clear guidelines regarding subscription and redemption frequencies. Additionally, the fees and expenses associated with these strategies must comply with mutual fund regulations.

Risk Controls and Exposure Limits

To mitigate risks, SEBI has implemented strict exposure limits for SIFs. For debt instruments, no more than 20% of an SIF’s net asset value (NAV) can be invested in securities issued by a single issuer with an investment-grade rating. This limit can be increased to 25% with approval from the fund’s board of trustees and asset management committee. In comparison, mutual funds currently have a 10% cap on investment in a single debt instrument.

Equity investments are also subject to specific limits. No SIF strategy can invest more than 10% of its NAV in the equity shares or equity-related instruments of a single company. Additionally, the total ownership in any company’s paid-up capital, with voting rights, is capped at 15% across all SIF strategies. For mutual funds, this limit is 10%.

These measures are intended to prevent excessive concentration of holdings in any single entity, thereby reducing systemic risks.

Ensuring Transparency and Investor Awareness

To promote transparency and ensure investor awareness, SEBI mandates that SIFs maintain a distinct identity separate from traditional mutual fund offerings. Fund managers overseeing SIFs must hold certifications from the National Institute of Securities Markets, as specified by SEBI. Furthermore, asset management companies must adhere to SEBI’s guidelines on branding, advertising, disclaimers, and website maintenance.

SEBI also requires comprehensive disclosures in the offer documents of SIFs. These documents must provide detailed information to help investors make informed decisions, including clear warnings about the high-risk nature of these funds. Additionally, SIFs must comply with SEBI’s portfolio disclosure norms to ensure transparency in reporting formats and timelines.

Restrictions on REITs and InvITs Investments

In addition to the SIF guidelines, SEBI has introduced restrictions on investments in Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs). Total investments in REITs and InvITs cannot exceed 20% of their NAV, with a 10% cap per issuer. Furthermore, the total ownership of units issued by a single issuer across strategies is limited to 20%. However, index funds and sector-specific schemes are exempt from these limits.

 

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.

Published on: Dec 18, 2024, 9:48 AM IST

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