Financial products must focus on solving specific investor challenges, such as obtaining tax-efficient income and low-risk yields, rather than gaining traction simply because they represent novel structures. Speaking at the ET Wealth Summit, Edelweiss Mutual Fund Managing Director and Chief Executive Officer Radhika Gupta stated that the demand for income-focused and tax-efficient structures has intensified since 2023, particularly as fixed-income instruments began yielding lower post-tax returns. She highlighted that specialised investment funds, known as SIFs, offer a way to meet this requirement by deploying the flexible strategies permitted under current regulatory frameworks.
During their inaugural year, specialised investment funds have expanded rapidly, accumulating roughly Rs 38,000 crore in aggregate industry assets under management. Edelweiss Mutual Fund has emerged as the leading player in this newly established segment, overseeing approximately Rs 14,000 crore in assets at the time of the conference. Gupta noted that client adoption is broad-based, moving beyond corporate treasuries and family offices to encompass retail and high-net-worth market participants based in tier-II and tier-III locations.
The growth of the vehicle stems from its ability to repackage investment approaches previously restricted to Category III alternative investment funds, portfolio management services, and specific mutual fund categories. Historically, steep minimum entry barriers and tax considerations made several of these strategies less viable or accessible for wider investor groups. SIFs bridge this gap by offering these methods in a more accessible wrapper, though Gupta noted they will coexist alongside traditional mutual funds as complementary vehicles.
Investors were cautioned against expecting these structures to consistently provide upside market gains while entirely shielding portfolios during drawdowns. Hybrid long-short income strategies, for instance, cannot be expected to outpace equity markets during rallies or act as cash equivalents across differing conditions. Gupta stressed that comparing SIFs using linear performance league tables is flawed, as underlying derivatives strategies vary widely from low-risk arbitrage and covered call hedging to aggressive directional bets.
The expansion of SIFs also introduces structural and managerial hurdles across the asset management sector. Scaling smaller portfolios into substantially larger funds can impair the execution of niche strategies, making the retention of specialised talent and procedural consistency vital. Gupta noted that while SIFs are barred from deploying leverage—separating them from retail derivatives traders—investors still need deeper education regarding derivative instruments, stated investment durations, and the realistic potential for stretches of negative performance.
Tax implications remain a key factor dictating net realized earnings. Under the existing framework, equity SIFs are taxed in line with equity mutual funds, debt SIFs mirror debt mutual fund rules, and hybrid SIFs follow taxation tied to listed securities or interval funds. Rather than committing large capital outlays at once or selecting products solely for tax advantages, Gupta advocated beginning with conservative allocations to establish operational familiarity, using SIFs to selectively complement existing holdings across 18-month or mid- and small-cap horizons.
Key numbers
- SIF industry assets under management: Rs 38,000 crore
- Edelweiss Mutual Fund SIF assets: Rs 14,000 crore
- Shift in fixed-income tax efficiency: 2023
What a board might note
- How does the corporate treasury's post-tax yield on fixed-income investments compare with allocations evaluated since the 2023 tax changes?
- Does the company have clear risk parameters for derivative mechanisms—such as covered calls or arbitrage—used within the Rs 38,000 crore SIF market?
- Could an 18-month liquidity horizon or mid-cap portfolio allocation be served more efficiently by hybrid SIF structures than traditional mutual fund holdings?
Source: Economic Times, 10 October 2026. This is a summary of a news report, published as general information. It is not legal, tax or investment advice.
This article is journalism and commentary. It is not a recommendation to buy or sell any security, and it is not professional advice. Read the full disclaimer.
