Specialized Investment Funds (SIFs) in India: Equity, Debt, Hybrid Strategies and Taxation

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Investment Strategies under Specialized Investment Funds (SIFs)

Specialized Investment Funds (SIFs) are a new category introduced by SEBI to bridge the gap between mutual funds and AIFs/PMS. They combine the regulatory and taxation benefits of mutual funds with the strategic flexibility of alternative funds.

SIFs allow fund houses to launch strategies across equity, debt, and hybrid categories, with controlled use of derivatives and limited short exposure.

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Equity-Oriented Strategies

1. Equity Long-Short Fund

   • Open-ended or interval strategy.

   • Minimum 80% investment in equity and equity-related instruments.

   • Can take short positions through unhedged derivatives up to 25%.

2. Equity Ex-Top 100 Long-Short Fund

   • Focuses on companies outside the top 100 by market capitalization.

   • Minimum 65% allocation to equity in this segment.

   • Short exposure allowed up to 25%.

3. Sector Rotation Long-Short Fund

   • Concentrated strategy investing in a maximum of four sectors.

   • At least 80% in equity from those sectors.

   • Sector-level shorting allowed, up to 25%.

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Debt-Oriented Strategies

1. Debt Long-Short Fund

   • Interval strategy with exposure across duration and credit profiles.

   • Can use unhedged short positions in debt derivatives up to 25%.

2. Sectoral Debt Long-Short Fund

   • Invests across at least two sectors, with a maximum of 75% in one sector.

   • Short positions can be taken across debt instruments of the chosen sectors, up to 25%.

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Hybrid Strategies

1. Active Asset Allocator Long-Short Fund

   • Interval fund investing dynamically across equity, debt, REITs/InvITs, commodities, and derivatives.

   • Short exposure capped at 25%.

2. Hybrid Long-Short Fund

   • Interval strategy with at least 25% in equity and 25% in debt.

   • Balance can be adjusted tactically depending on market conditions.

   • Unhedged short exposure up to 25%.

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Taxation Framework

One of the biggest advantages of SIFs is their tax efficiency. The taxation is aligned with mutual funds, making them more attractive than PMS or AIFs.

• Equity investments: Long-term capital gains (LTCG) taxed at 12.5% after 12 months holding.

• Debt investments: Taxed as per the investor’s income tax slab rate.

• Other instruments (REITs, InvITs, etc.): LTCG taxed at 12.5% after 24 months holding.

• Fund-level taxation: Nil (pass-through structure, similar to mutual funds).

This framework ensures investors get the flexibility of AIF-like strategies without losing the tax benefits enjoyed under mutual funds.

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Conclusion

SIFs offer investors the best of both worlds — professional fund management under SEBI regulations, tax efficiency of mutual funds, and the strategic flexibility to use long-short and derivative-based approaches.

By covering equity, debt, and hybrid strategies, they allow investors to choose products that align with their risk appetite and return expectations. For investors seeking diversification, risk management, and efficiency, SIFs represent an important new addition to India’s investment landscape.

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