Specialized Investment Funds (SIFs), a new investment category launched by the Securities and Exchange Board of India (SEBI), could emerge as an important solution for investors struggling with a period of moderate returns in the market. Executive Director and Chief Investment Officer, ICICI Prudential Mutual Fund S. According to Naren, SIF is one of the most important developments for the mutual fund industry in recent years. Especially in an environment where investors may not see returns similar to those seen between 2020 and 2024.
Naren said, pure equity funds are suitable for periods when the markets provide very high returns. But as markets enter a period of moderate returns, investors need other categories that can generate better risk-adjusted results.
How much return can be received
According to Naren, the creation of the SIF framework by SEBI bridges the gap that exists between traditional mutual funds and portfolio management products. Comparing it to the period between 2008 and 2013, when investment in mutual funds remained low amid disappointing returns in the market, he said the industry now has a product range specifically designed to deal with such an environment. Naren clearly said who should consider SIF and who should not. These products will not be suitable for investors expecting annual returns of 20% or more. Similarly, investors seeking capital preservation should also avoid them. He warned that these are not fixed deposits. Investors should not invest in these products in the hope of capital preservation.
For which investors SIF is a better option
SIFs are for long-term investors who understand volatility. Can tolerate periodic fluctuations in portfolio value and are willing to invest at least Rs 10 lakh, which is the minimum limit prescribed under the regulations. Among the SIF options recently launched by ICICI Prudential AMC, Naren highlighted the Active Asset Allocator strategy as a unique offering. Unlike traditional multi-asset funds, which are mandated to maintain investments in specific asset categories like gold and silver, the Active Asset Allocator (SIF) category is not tied to a mandatory allocation. This strategy can dynamically allocate across equities, debt commodities, REITs, invitational investments and cash using hedging techniques permitted under SIF rules. “Anything that offers maximum flexibility is a good option for long-term investment,” Naren said. He described this strategy as a “buy, hold and forget” strategy, which is for investors who are willing to trust the asset allocation decisions of the fund manager over the long term. iSIF Active Asset Allocator offering plans to use exchange-traded commodity derivatives in addition to traditional investments in gold and silver. Naren said that if opportunity arises, the fund can invest in commodities like crude oil, aluminum and copper.
Changes occur with market movements
Such allocations may be limited due to liquidity constraints, but ICICI Prudential’s investment team has been tracking these markets for many years and have found them useful in managing risks arising from commodity market fluctuations and enhancing portfolio diversification. Despite the wide derivatives flexibilities available under SIF rules, Narine said ICICI Prudential currently has no intention of engaging in naked short selling. Instead, the fund house plans to focus on hedging strategies like covered call writing and cash-backed put writing. Citing increased geopolitical uncertainties, Narine said the investment team currently prefers to take a more cautious approach to risk management. He further said that this stance is not permanent and may change as market conditions change.
Minimum investment of 80% is mandatory
Equity Long-Short SIF strategy is for cautious equity investors. Another SIF strategy from ICICI Prudential, the Equity Long-Short Strategy, is designed for investors who want to invest in equities while focusing on risk-adjusted returns. Although at least 80% investment in equity and equity-related instruments is mandatory in this category, Naren emphasized that hedging mechanisms can reduce portfolio risk to a great extent. He described this strategy as suitable for conservative flexi-cap investors rather than those seeking aggressive returns. Narine said this category is best suited for experienced, long-term investors who understand market cycles and feel comfortable evaluating performance over years rather than months. He believes that this category can play an important role at a time when future equity returns may be lower than in recent years. “SIF is for long-term investors who understand risk-adjusted returns and are willing to remain invested despite market fluctuations.
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