SEBI Tightens Rules for SIFs: Units to Be Frozen If Minimum Investment Falls Below ₹10 Lakh

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Applies only in case of redemptions or switch-outs, not market-driven losses

Mumbai: In a significant move to safeguard the integrity of high-value investment products, the Securities and Exchange Board of India (SEBI) has issued a clarification that units of Specialized Investment Funds (SIFs) will be frozen for debit if an investor’s holding falls below the mandated minimum investment threshold of ₹10 lakh due to an active breach.

The regulator has drawn a clear line between active and passive breaches. Active breaches refer to situations where the holding drops below the threshold because of redemptions or switch transfers. In such cases, fund houses are obligated to take immediate action. Conversely, passive breaches—where the value dips below ₹10 lakh purely due to market volatility or performance fluctuations—will not result in such freezing.

Daily Monitoring Now Mandatory

To enforce this rule, SEBI has directed all fund houses offering SIFs to implement daily monitoring systems. This marks a step-up from periodic compliance reviews and places the onus on Asset Management Companies (AMCs) to maintain real-time oversight on investor eligibility.

What Happens If an Active Breach Occurs?

According to the SEBI directive, here’s the step-by-step process that AMCs must follow when an investor’s holding falls below ₹10 lakh due to an active breach:

Immediate Freeze:
All units under the investor’s SIF strategies must be frozen for debit (i.e., the investor cannot redeem or switch out further units).
30-Day Window to Reinvest:
The investor is given a 30-day notice to bring their investment back up to the minimum threshold by reinvesting the required amount.
Restoration of Access:
If the investor complies and tops up their holding within the 30-day window, units are unfrozen automatically, and no further regulatory action is taken.
Auto Redemption If No Action Taken:
If the investor fails to reinvest, AMCs are required to redeem all frozen units at the Net Asset Value (NAV) applicable on the next business day after the 30-day period ends.

This move is intended to ensure that only serious and well-capitalized investors remain in these niche fund categories, which often involve higher risks or specific strategies not suited for retail-level exposure.

Why It Matters

Specialized Investment Funds are generally targeted at high-net-worth individuals (HNIs) and institutional investors due to their strategic, thematic, or alternative approach. Ensuring that investors maintain the minimum ₹10 lakh exposure protects both the integrity and financial viability of these funds.

By focusing the rule on active rather than passive breaches, SEBI aims to maintain fairness for investors during times of market volatility, while cracking down on deliberate attempts to circumvent fund eligibility requirements.

Effective Immediately

These rules are effective July 29, 2025, and will apply to all existing and new SIF investments. Fund houses are expected to update their internal systems and investor communication protocols accordingly.

Industry Reaction

While official industry reactions are yet to pour in, the move is expected to be broadly welcomed by fund managers and compliance officers, as it reduces ambiguity in how to deal with threshold violations.

Analysts believe this will also promote greater investor discipline, particularly in niche strategies where minimum exposure is essential to ensure portfolio stability and fund performance.

Specialised Investment Funds (SIFs) are a new asset class introduced by the Securities and Exchange Board of India (SEBI) in December 2024, aimed at bridging the gap between mutual funds and Portfolio Management Systems (PMS). Here’s what you need to know:

Key Features:

Minimum Investment: ₹10 lakh per investor, making it accessible to high-net-worth individuals

Flexibility: Offers flexible investment strategies, including equity, debt, and hybrid options

Professional Management: Experienced fund managers with a track record of managing significant assets

Risk Management: Features like long-short strategies, diversification, and controlled derivative usage to mitigate risk

Customisation: Allows investors to choose subscription and redemption cycles that align with their strategy

Investment Strategies:

Equity Oriented: Equity long-short, equity ex-top 100 long-short

Debt Oriented: Debt long-short

Hybrid Oriented: Hybrid long-short

Derivatives Usage: Up to 25% of net assets for purposes beyond hedging

Benefits:

Regulatory Oversight: SEBI-regulated, ensuring investor protection

Transparency: Regular disclosure of risk bands and investment strategies

Expertise: Fund managers with significant experience and assets under management
Eligibility Criteria:
- Asset Management Companies (AMCs): Must have a minimum AUM of ₹100 crore or fund managers with at least three years of experience managing ₹500 crore
- Chief Investment Officer (CIO): Must have experience managing ₹5,000 crore and at least 10 years of service