Mutual funds plan to enter SIF space with equity and hybrid offerings

Mutual funds (MFs) are lining up equity and hybrid strategies as their entry point into the newly introduced specialised investment fund (SIF) category, aiming to capitalise on early-mover advantage and plug gaps unmet by traditional schemes. 

Fund executives say the choice between equity and hybrid strategies is driven by three key factors: existing product gaps in the investment universe, market demand for such offerings, and the resources available to the fund house. 

The first SIF launches are expected next month, with at least two asset management companies (AMCs) — Quant and Edelweiss — having secured SIF licences. Edelweiss will operate its SIF business under the ‘Altiva SIF’ brand. Several AMCs have applied to the Securities and Exchange Board of India (Sebi) or are in the process of doing so. 

On the product front, Edelweiss and Axis have chosen hybrid strategies, while Quant and SBI are focusing on equity. At least three other fund houses are planning to launch equity or hybrid funds as their first scheme in the SIF space, according to industry sources. 

The current SIF rules allow up to seven SIF products: two each in equity (equity long-short, equity ex-top 100 long-short, and sector rotation long-short), hybrid (active asset allocator long-short and hybrid long-short), and debt (long-short and sector long-short) categories. 

 

Edelweiss AMC, for example, is opting for a hybrid structure for its launch. This approach offers the flexibility to create a diversified fund that can fill existing product gaps. 

“This space can either be used to launch a true-to-label multi-asset fund or a tax-efficient income-oriented or absolute return strategy. There is demand for the latter after the change in fixed income fund taxation,” said Niranjan Avasthi, senior vice-president, Edelweiss MF. 

Meanwhile, a fund house executive considering an equity product said that the decision was driven by the AMC’s experience in managing long-short equity funds and the availability of the right resources to manage such a scheme. 

However, the fixed income category remains less popular due to an unfavourable tax structure and other challenges. 

“The rules require all short selling to occur through exchanges, which is difficult on the debt side due to poor liquidity,” said an MF executive.

 

SIFs, a new product vertical that only MFs can offer, were announced by Sebi in 2024 and are meant for higher-income investors with a high risk appetite. SIFs will have a minimum ticket size of ~10 lakh across strategies offered by a single fund house. Apart from the lower ticket size compared to competing investment products like portfolio management services and alternative investment funds, SIFs also have a tax advantage. Like MFs, SIFs won’t have to pay tax while selling stocks at the fund level. 

“SIFs have the ticket size and tax advantage. Even as offerings like equity long-short and absolute return funds already exist, similar strategies through the SIF route will see demand as tax efficiency will possibly lead to higher returns,” said Rahul Jain, president and head of Nuvama Wealth.