India's investment space is undergoing a significant transformation with SEBI's introduction of Specialised Investment Funds (SIFs)—a new category poised to bridge the gap between mutual funds and more exclusive Portfolio Management Services (PMS) and Alternative Investment Funds (AIFs).

This move is set to democratize access to sophisticated investment strategies, offering an opportunity to mass affluent investors who were earlier kept out of high-end investment products due to steep entry barriers.

What Are SIFs?

Specialised Investment Funds (SIFs) are designed to provide investors access to advanced investment strategies—such as long-short equity, debt strategies, and sectoral plays—previously accessible only through AIFs or PMS.

Where PMS and AIFs require minimum investments of Rs 50 lakh and Rs 1 crore respectively, SIFs require just Rs 10 lakh—opening the door to a much larger investor base, particularly the mass affluent segment.

Who Is Launching SIFs?

Leading mutual fund houses like Edelweiss and Quant have already received licenses to launch SIFs. Others, including Nippon and Axis, are in the process of seeking approvals from SEBI.

This marks a strategic expansion of mutual fund houses into the alternative strategy space, previously dominated by AIFs and PMS providers.

Competitive Dynamics with PMS and AIFs

While SIFs are not expected to replace PMS or AIFs entirely, they are seen as a disruptor in the making. According to R Pallavarajan, Founder of PMS Bazaar:

“SIFs are being seen as ‘mini PMS’ by some, but to me, they’re more like mega mutual funds.”

This is particularly relevant for clients with investable assets between Rs 10 lakh and Rs 50 lakh—a segment that previously had limited access to anything beyond mutual funds.

AUM Landscape and Exposure

As of April 2025, PMS assets under management (AUM) stand at:

• Rs 32 lakh crore (Discretionary PMS)

• Rs 3 lakh crore (Non-Discretionary PMS)

Discretionary PMS involves fund managers making investment decisions on behalf of clients, while Non-Discretionary PMS requires investor approval for each trade. The latter has declined due to transparency concerns, shifting preferences to AIFs.

Meanwhile, AIFs reported Rs 13.49 lakh crore in commitments as of March 2025, with Category III AIFs (which use long-short and leverage strategies) growing 58.4% year-on-year.

Why SIFs Are a Threat to AIFs and PMS

SIFs mimic many of the strategies of Category III AIFs, such as:

• Long-short equity

• Debt long-short

• Sectoral and thematic allocations

• Use of leverage up to 25% in unhedged short positions

This means investors can now access similar products at just Rs 10 lakh, rather than Rs 1 crore.

According to Shweta Rajani, Head of Mutual Funds at Anand Rathi Wealth:

“Investors who wanted differentiated strategies had to go to AIFs with Rs 1 crore minimum. Now they can consider SIFs with just Rs 10 lakh.”

SIFs vs PMS: The Taxation Advantage

One of the biggest advantages of SIFs lies in tax efficiency.

• In PMS, since investments are held in the client's own demat account, every buy and sell transaction attracts capital gains tax in real time.

• In SIFs (like mutual funds), tax is only paid when units are redeemed. This offers deferral of tax liability and potential compounding advantage.

This makes SIFs far more tax efficient compared to PMS, particularly for active trading strategies.

Industry Views on the Shift

Fund managers are divided on the long-term implications:

• Abhay Agarwal of Piper Serica believes PMS will retain its edge due to customisation and flexibility that SIFs can’t yet offer.

• On the flip side, an anonymous AIF CEO expressed concern that if early SIFs underperform, it could damage investor trust in the broader category.

• There is also fear of talent attrition from PMS and AIFs, as mutual fund AMCs look to hire experienced managers for their new SIF ventures.

SEBI's Reform Agenda and Future Roadmap

The launch of SIFs is part of SEBI’s broader effort to expand access to sophisticated investment strategies while improving transparency and governance.

Several PMS firms are reportedly applying for AMC licenses, indicating a shift towards more integrated asset management platforms that can offer a full suite of products—from mutual funds to PMS, AIFs, and now SIFs.

Sagar Lele of Paterson added:

“The more tailored the portfolio, the less vulnerable it is. Standardised PMS might face heat, but bespoke offerings will survive.”

What Makes SIFs Unique?

Key Features of SIFs Include:

• Minimum investment of Rs 10 lakh, making them accessible to a wider investor base

• Ability to replicate complex strategies like those in Category III AIFs

• Taxation similar to mutual funds, offering deferred tax liability

• Allowed leverage of up to 25% in unhedged positions, providing strategy flexibility

• Operated by AMCs, ensuring a higher degree of regulatory oversight compared to many standalone PMS operators

Segment-Wise Impact Outlook

• Category I & II AIFs (focused on startups, infrastructure, and real estate) may retain their unique appeal.

• Category III AIFs face the most overlap and may lose their distinctive proposition.

• Standardised PMS strategies are likely to see pressure from low-cost, tax-efficient SIFs.

• Highly personalised PMS strategies will continue to cater to ultra-HNIs looking for bespoke portfolios.

Conclusion: Evolution, Not War

SEBI’s introduction of SIFs is being widely seen not as a challenge, but an evolution of India’s investment framework.

It fills a long-standing gap in the financial market by catering to investors who fall between the traditional mutual fund crowd and the ultra-HNI segment targeted by PMS and AIFs.

SEBI is opening the door to more flexible, complex, and tax-efficient options for retail and mass affluent investors—democratising sophisticated investment products without sacrificing oversight or compliance.

As more AMCs enter the SIF market, the focus will shift to product innovation, fund manager expertise, and performance delivery. How PMS and AIFs respond to this growing competition will shape the next phase of India's wealth management evolution.

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