SIF vs Mutual Funds: Where should you invest ₹10 lakh? Here's what retail investors need to know

Let's be honest. When you hear about a hot new investment fund with a fancy name like Special Investment Fund (SIF), your first thoughts probably are: "Does it suit my investment needs?" and "How much do I need to get started?"

Pankaj Mathpal, MD & CEO at Optima Money Managers, says, "If you have only ₹10 lakh sitting in your account, there are much smarter, safer, and more accessible ways to invest that money to generate genuine wealth, instead of pouring all your capital into one exclusive bet."

Similarity between SIFs and Mutual Funds

Both SIFs and MFs are investment tools. These are pooled products that involve pooling money from multiple investors into a single fund, which a professional fund manager then manages.

Taxation for both mutual funds and special investment funds is broadly similar at the investor level. For equity-oriented investments, long-term capital gains (LTCG) exceeding ₹1,25,000 in the current financial year are taxed at 12.5% if held for more than 12 months.

While short-term gains (held for 12 months or less) are taxed at 20%. For debt-oriented funds, gains are taxed as per the investor’s income tax slab, regardless of the holding period.

Difference between MF and SIFs

Mutual funds may offer greater diversification than special investment funds. SIFs will have various investment strategies across equity, debt, and hybrid, but they may employ a more concentrated strategy to generate alpha over benchmark return. "Their primary risk control measure is up to 100% hedging using derivatives," said Mathpal.

SIFs require a high minimum investment of ₹10 lakh, while mutual funds start as low as ₹100, making them accessible for everyday investors.

For an investor with less than ₹10 lakh, MFs are the only viable and diversified option.

"If you have ₹10 lakh or more, investing it across 5-7 different MF categories (flexi-cap, multi-cap, hybrid, debt, etc.) provides far better diversification than putting the entire sum into a single SIF," explained Pankaj Mathpal.

Virtually every major Asset Management Company (AMC) offers a wide range of mutual fund schemes, making them easily accessible through banks, brokers, and online platforms.

Pankaj Mathpal shared some examples of how a large corpus might be divided:

According to Mathpal, SIFs tend to be more sophisticated, with 100% hedging of risk. This means that the fund actively manages market risks through derivatives, shorting spot markets, and other strategies to limit losses and ensure better control of volatility.

Mutual funds are generally less hedged but can provide some level of diversification. The risk management in MFs is more about spreading investments across various assets, but it's not as proactive as in SIFs.

He cautioned that investors should not expect guaranteed returns from SIFs.

MFs are regulated investment schemes open to the public, while SIFs are strategic, high-capital vehicles designed for sophisticated investors with specific investment goals. It’s important for investors to understand the nature of the investment, including its hedging mechanisms and risk profile, before investing.