Market regulator Sebi extends MF expense structure to new asset class

Regulator notifies investment rules for 'specialised investment fund'

Specialised investment fund (SIF), a new asset class, will have the same expense structure as that of mutual funds (MFs), according to rules notified by the Securities and Exchange Board of India (Sebi).

 

SIF, which was first proposed by Sebi in July 2024, aims to fill the gap between MFs and portfolio management services (PMS), and it looks at informed investors, who are willing to take riskier bets.

 

The maximum fee that can be charged by MFs is determined by the size of the fund. For equity schemes up to Rs 500 crore in size, the maximum chargeable expenses is capped at 2.25 per cent of the assets under management (AUM). The cap goes down as the fund size increases.

 

In the notification, the regulator has confirmed the Rs 10 lakh minimum investment threshold for SIFs. However, accredited investors can invest a lower amount.

 

The new product line will have offerings across open-ended, close-ended, and interval investment strategies. The list of permissible strategies will likely be announced by Sebi later.

 

SIFs, while having higher flexibility than MFs, will be subject to investment restrictions. For debt instruments, the single issuer exposure is capped at 20 per cent of the total assets. This limit can be extended to 25 per cent after approval from asset management company (AMC)'s trustees and board of directors. Government securities are exempt from this cap.

 

In the case of equity, the limit is same as that of MFs at 10 per cent of the total assets. The maximum permissible ownership in a company has been raised to 15 per cent (including the MF exposure).

 

"If a mutual fund under all its schemes owns 10 per cent of any company’s paid-up capital carrying voting rights, then the SIF under all its investment strategies shall not own more than 5 per cent of that company’s paid-up capital carrying voting rights," Sebi explained in the notification. 

 

For REITs (real estate investment trusts) and InvITs (infrastructure investment trusts), the maximum investable amount is 20 per cent of the AUM of all SIFs offered by an AMC. However, they cannot invest more than 10 per cent in a single issuer.

 

Most other regulations will be same as that for MFs, including taxation, according to industry officials.

 

In addition, Sebi has mandated AMCs to create a distinct identification for SIFs to "maintain clear differentiation between the offerings of the SIFs and MFs".

 

"The AMC shall comply with the provisions relating to branding, advertising, standard disclaimers, guidelines on usage of sponsor or AMC, or mutual fund’s brand name, and maintenance of a separate website, as may be specified by the Board from time to time," the notification stated.

 

The regulation has tasked AMC trustees to ensure that their firm has necessary expertise, internal control systems, and risk management mechanisms to invest and manage investments.

 

"The trustees shall ensure that the AMC complies with such other requirements related to risk management, investor protection, disclosures and reporting, as may be specified by the Board from time to time," the notification said.