SIF, Mutual Funds and PMS — How They Differ
Regular mutual fund schemes, SIFs, Portfolio Management Services (PMS) and Alternative Investment Funds (AIFs) are all regulated by SEBI, but differ in structure, rulebook, minimum investment and what the manager may do. This lesson sets them side by side.
Pooled fund or individual account
The first difference is structural. In a regular mutual fund scheme and in a SIF, investors' money is pooled and each investor holds units. An AIF is also a pooled vehicle.
PMS works differently. Each client has an individually managed account, not a share of a pool, and the client owns the securities in it directly.
Which rulebook applies
A SIF sits inside the mutual fund framework. It is offered by a mutual fund/AMC that meets SEBI's eligibility conditions, and its rules are in Chapter 21 of SEBI's Master Circular for Mutual Funds. PMS and AIFs are governed by their own separate SEBI regulations.
This has practical consequences: a SIF's tax treatment, expense framework and advertisement rules, for example, are those of mutual funds.
Minimum investment
Each regular scheme sets its own minimum. A SIF needs ₹10 lakh per investor. PMS needs ₹50 lakh per client, and an AIF ₹1 crore per investor, with exceptions such as accredited investors.
These are entry conditions set by regulation. They do not rank the products by risk or by quality.
What the manager may do
A regular scheme may use derivatives for hedging and rebalancing and may short-sell under the stock-lending framework with disclosures. A SIF strategy may go further and hold unhedged short positions through derivatives, up to 25% of net assets. Its cumulative gross exposure still cannot exceed 100% of net assets, so it cannot use leverage.
Leverage belongs to a different product: a Category III AIF may use it, up to 2 times NAV. None of these products assures returns, and a SIF carries a mandatory warning that investments in a SIF involve relatively higher risk including potential loss of capital, liquidity risk and market volatility.
Rules at a glance
What would I actually own?
Rohan, 52, an engineer in Coimbatore, lists what he would own in each of four SEBI-regulated products. In a regular scheme or a SIF strategy: units of a pooled fund. In an AIF: again units of a pooled fund, with a ₹1 crore minimum. Only in PMS would the securities sit in an account managed individually for him, with a ₹50 lakh minimum.
The list tells him how the products are built and which rulebook governs each. It does not tell him how any of them will perform.
Key points
- A regular scheme, a SIF and an AIF are pooled vehicles in which investors hold units; a PMS portfolio is an individually managed account.
- A SIF is offered under the mutual fund framework by an eligible AMC; PMS and AIFs have their own separate SEBI regulations.
- Minimums: set by each regular scheme; ₹10 lakh per investor for a SIF; ₹50 lakh per client for PMS; ₹1 crore per investor for an AIF.
- A SIF may hold unhedged short positions through derivatives up to 25% of net assets, which a regular scheme may not; its gross exposure cannot exceed 100% of net assets.
Common misunderstandings
- A SIF is not a small-ticket PMS or AIF: it is a mutual fund product whose investors hold units of a pool.
- PMS does not have the highest minimum: the AIF minimum of ₹1 crore is higher than the PMS minimum of ₹50 lakh.
- A higher minimum does not mean lower risk or better results: the minimums are regulatory entry conditions only.
Questions people ask
Under which framework is a SIF offered?
The mutual fund framework. It is a product category offered by a mutual fund/AMC that meets SEBI's eligibility conditions, and investors hold units of a pooled strategy.
Are gains taxed the same way in a SIF and in PMS?
No. A SIF follows the mutual fund tax rules, and the investor's capital gain arises when units are redeemed or sold. In PMS the client owns the securities directly, so gains are taxed in the client's hands on each transaction in the account.
Does the ability to go short make a SIF steadier than a regular scheme?
The framework says nothing of the kind. Short positions can lose money as well as make it, and no returns are assured.
What this lesson relies on
- SEBI Master Circular for Mutual Funds, 20 March 2026, Chapter 21 (Specialized Investment Funds)
- SEBI (Portfolio Managers) Regulations, 2020 and SEBI Master Circular for Portfolio Managers, 16 July 2025
- SEBI (Alternative Investment Funds) Regulations, 2012 and SEBI Master Circular for Alternative Investment Funds, 3 June 2026
- Income-tax Act, 2025
This lesson was reviewed independently against these sources on 8 October 2026. Rules change: check the current regulation, scheme document or policy wording before relying on any figure. This is education, not advice.