In a landmark decision at its January 2026 board meeting, the Securities and Exchange Board of India (SEBI) formally approved the creation of a new regulated asset class positioned between traditional mutual funds (minimum investment: Rs 500) and Portfolio Management Services (minimum investment: Rs 50 lakh). The new product category, provisionally termed "Specialised Investment Funds" (SIFs), sets a minimum investment threshold of Rs 10 lakh per scheme and grants fund managers significantly more flexibility than conventional mutual fund regulations allow.
What Specialised Investment Funds Can Do
SIFs will be permitted to employ investment strategies currently restricted under mutual fund regulations. These include long-short equity strategies (the ability to take short positions via derivatives), higher concentration in individual stocks (up to 15 percent per company versus the current 10 percent limit for mutual funds), and the ability to invest up to 25 percent of AUM in unlisted or pre-IPO securities. Debt-oriented SIFs can invest in lower-rated instruments and structured credit opportunities that are off-limits for regular debt mutual funds.
Crucially, SIFs will operate under the mutual fund regulatory umbrella, meaning they will be managed by existing AMCs (not standalone managers as in PMS), subject to SEBI's mutual fund advertising and disclosure norms, and required to publish daily NAVs. This provides a level of transparency and regulatory oversight that PMS, with its more opaque reporting, has historically lacked.
Who Is This For?
The target audience is affluent retail and high-net-worth investors (HNIs) who have investable surpluses above Rs 10 lakh but below the Rs 50 lakh PMS threshold, and who seek strategies beyond vanilla long-only equity or plain-vanilla debt. SEBI's own analysis estimates that approximately 40 lakh demat account holders in India have portfolio values between Rs 10 lakh and Rs 50 lakh, a substantial addressable market currently served by unregulated and semi-regulated products such as smallcase portfolios, AIF feeder structures, and offshore fund wrappers.
The new asset class is also designed to curb the flow of retail money into unregistered investment schemes and trading tips channels. By providing a regulated, SEBI-supervised alternative with sophisticated strategies, the regulator hopes to bring this investor segment within the regulated fold.
How SIFs Differ from Existing Options
Compared to mutual funds, SIFs offer broader mandates and higher concentration. Compared to PMS, SIFs offer lower minimums, pooled (not segregated) account structures, daily NAVs, and stronger regulatory protection. Compared to Category III AIFs (which also employ long-short strategies), SIFs have a dramatically lower minimum of Rs 10 lakh versus Rs 1 crore for AIFs, making them accessible to a much wider investor base.
The tax treatment of SIFs is expected to mirror mutual funds, with equity-oriented SIFs (65 percent or more in equities) taxed at short-term capital gains rates of 20 percent (if held less than one year) and long-term capital gains at 12.5 percent above the Rs 1.25 lakh annual exemption. Debt-oriented SIFs will be taxed at marginal income tax rates, similar to debt mutual funds post the FY24 tax changes.
Potential Risks and Concerns
Industry observers have raised several concerns. The higher concentration limits increase stock-specific risk. Long-short strategies require sophisticated risk management that not all AMCs have demonstrated historically. The Rs 10 lakh minimum, while lower than PMS, is still substantial and restricts access to wealthier investors, potentially creating a two-tier system within the mutual fund industry.
There is also the question of expense ratios. SEBI has indicated that SIFs will be permitted to charge higher management fees than regular mutual funds, potentially in the range of 2 to 2.5 percent, reflecting the more complex strategies involved. Investors must weigh these higher costs against the potential for superior risk-adjusted returns.
Should You Consider SIFs?
If you have a diversified portfolio of mutual funds worth Rs 20 lakh or more and are seeking to add uncorrelated return sources, SIFs could be a valuable addition. However, they should complement, not replace, your core mutual fund holdings. A sensible allocation might be 70 to 80 percent in traditional mutual funds (via SIPs) and 10 to 20 percent in SIFs for satellite or tactical exposure. Use our Lumpsum Calculator to model the impact of deploying Rs 10 lakh into a strategy with varying return assumptions and holding periods. As always, invest in line with your risk tolerance, time horizon, and overall financial plan.
Source
SEBI Board Meeting Press Release, January 2026; SEBI Consultation Paper on New Asset Class