MUMBAI: Specialised investment funds (SIFs) marked their first anniversary with a sharp acceleration in assets, with net assets surging 35% to Rs 31,175 crore in August from Rs 23,177 crore a month earlier, driven by strong investor interest in equity and hybrid strategies.
The surge comes at a time when monthly systematic investment plan (SIP) contributions to mutual funds also touched an all-time high of Rs 32,297 crore in August, highlighting continued investor interest in equities despite tepid performance of benchmark indices over almost two years.
SIFs completed a year on September 17 since the launch of the first new fund offer (NFO). Positioned between traditional mutual funds and more sophisticated products such as portfolio management services (PMS) and alternative investment funds (AIFs), SIFs have a minimum investment threshold of Rs 10 lakh and have gained traction particularly among affluent and high-net-worth investors. While September numbers are yet to come, the category has been a stellar performance till now.
The growth in SIFs was broad-based. Net assets of equity SIFs jumped 47% during the month, while hybrid SIF assets rose nearly 30%. Three NFOs collected Rs 1,420 crore, while investor folios increased 33%, suggesting that the expansion was driven by both fresh launches and a widening investor base.
Industry executives attribute the rapid growth to the flexibility of SIF strategies, their performance so far and their ability to offer sophisticated investment approaches at relatively lower costs.
Radhika Gupta, managing director and CEO, Edelweiss AMC, said the unique structure of SIFs gives investors flexibility to address specific requirements, including tax efficiency, debt-like returns and PMS-like exposure to mid- and small-cap stocks.
Sandeep Seth, founder and CEO, SIF360, said the performance of equity and hybrid SIFs relative to comparable mutual fund schemes, after adjusting for portfolio characteristics and risk, has helped attract HNI money.
Dharmendra Jain, co-founder, Ionic Wealth, attributed the growth to an expanding distribution network, a growing roster of AMCs and rising investor interest in equity strategies alongside hybrid schemes. The relatively high average ticket size of SIF investments has also helped assets scale rapidly, he said.
Anup Bhaiya, founder, Money Honey Financial Services, said some HNIs are shifting allocations from Category III AIFs and PMS products to SIFs, which can provide access to similar strategies at a lower cost.
However, SIFs face a more demanding test as they enter their second year, particularly if market conditions turn less favourable.
Gupta said maintaining realistic investor expectations and ensuring that investors enter SIFs with the appropriate investment horizon would be crucial for their long-term success.
Seth pointed to the risks associated with short positions used by some SIF strategies. Such exposure could lead to underperformance during strong bull markets, such as the rally witnessed after the Covid-19 pandemic.
Jain said the concentration of assets in hybrid strategies could become a vulnerability if these schemes underperform. A sustained equity rally and the absence of a wider range of debt-oriented SIFs could also weigh on the category’s growth.
Bhaiya said SIFs are yet to be tested through a full market downcycle. Weak execution of short positions, crowded long-short trades or disappointing returns could cool investor inflows. A limited pool of certified distributors, product complexity and the risk of SIFs being marketed simply as “better mutual funds” are other constraints, he said.
Despite these risks, industry participants expect the category to maintain its growth momentum as more fund houses launch products and the distribution network expands.
Gupta expects strong growth to continue as more AMCs introduce equity and hybrid strategies and more distributors obtain certification. Performance, however, will remain critical to how quickly the category scales from current levels.
She expects hybrid long-short strategies to remain dominant in the near term. Over the medium term, SIFs could become a regular part of HNI portfolios, although they should be viewed as satellite allocations rather than replacements for core mutual fund holdings, she said.
Seth expects SIF assets to cross Rs 1 lakh crore by the end of FY27 as more AMCs and distributors enter the segment and the products establish a longer performance record.
Jain said the launch of SIFs across more asset classes could eventually allow investors to construct SIF-only portfolios, while a wider distribution network could provide another leg of growth.
After a rapid first year, the next phase of SIF growth may depend less on novelty and more on whether the products can deliver consistent returns across market cycles.
Source: The Financial Express
