Specialised Investment Funds Launched in India, Offering Investors New Tactical Allocation Options and Higher Potential Returns

Following approval from the Securities and Exchange Board of India (SEBI) in April, eight asset management companies have introduced Specialised Investment Funds (SIFs). These funds are designed to serve as tactical or satellite allocations, augmenting investors' existing core holdings in equity and debt.

SIFs are primarily targeting "arbitrage-plus" returns, aiming for approximately 100-200 basis points higher than conventional fixed-income or arbitrage funds. They are positioned between arbitrage and hybrid funds, with investors potentially seeing annualized returns of 6-8%. The key advantage lies in their flexibility to employ diverse investment techniques, including long-short equity, multi-asset diversification, and the strategic use of derivatives for leverage and risk management, enabling them to generate returns across various market conditions.

The minimum investment required for SIFs is Rs 10 lakh, which is lower than the Rs 50 lakh for portfolio management services. Experts suggest these funds can enhance portfolio efficiency by aiming for higher returns per unit of risk. SIFs offer investors new avenues for diversification and managing volatility, with potential for smoother returns.

Impact: This development provides Indian investors with more sophisticated investment options, potentially leading to improved risk-adjusted returns and diversification benefits. It could also spur further innovation in fund management products within India. Rating: 7/10

Difficult Terms:

* **Specialised Investment Funds (SIFs)**: Investment funds with unique structures and strategies, approved by regulators, offering specialized investment approaches beyond traditional mutual funds. * **Satellite or Tactical Allocation**: An investment strategy where a smaller portion of an investment portfolio is allocated to specific, often riskier or specialized assets, to potentially enhance overall returns or provide diversification, complementing a larger core portfolio. * **Arbitrage-Plus Returns**: Returns generated by exploiting price differences in different markets or forms of an asset, with an added margin above the basic arbitrage profit. * **Basis Points (bps)**: A unit of measure equal to one hundredth of one percent (0.01%). 100 basis points equal 1%. * **Hybrid Funds**: Investment funds that combine different asset classes, such as equity, debt, and sometimes gold, within a single portfolio. * **Long-Short Equity**: An investment strategy that involves taking both long positions (betting on a stock price increase) and short positions (betting on a stock price decrease) in equities. * **Multi-Asset Diversification**: An investment approach that spreads capital across several different asset classes (e.g., stocks, bonds, commodities, real estate) to reduce overall portfolio risk. * **Derivatives**: Financial contracts whose value is derived from an underlying asset, such as stocks, bonds, commodities, or currencies. They can be used for hedging or speculation. * **Leverage**: Using borrowed funds or financial instruments to increase the potential return of an investment, but also amplifying potential losses. * **Hedging**: An investment strategy used to offset potential losses or gains that may be incurred by a companion investment. * **Liquidity**: The ease with which an asset can be bought or sold in the market without affecting its price. * **Lock-in Periods**: A period during which an investment cannot be withdrawn or sold. * **Redemption Options**: The rights of an investor to sell back their investment units to the fund.