SIF vs Mutual Funds vs PMS | Sankaran Naren Explains the Difference

ELI5/TLDR

SEBI invented a new kind of fund called a SIF — Specialized Investment Fund. It sits between a mutual fund (anyone can buy, very regulated) and a PMS (rich-people product, fewer rules), with a minimum ticket of 10 lakh. The pitch: regular equity funds shine when markets are roaring, but they’re miserable when markets are flat for years. SIFs are built for those flat years — go-anywhere funds that can mix equity, gold, oil, and hedging to grind out steady-but-modest returns. Sankaran Naren, the CIO at ICICI Prudential, says the same thing four different ways: don’t buy this if you expect 20% a year, and don’t buy it thinking it’s a fixed deposit.

The Full Story

The gap SIFs fill

Naren’s whole framing rests on one observation about Indian markets: they spend long stretches doing nothing. He points to the fat years — 1993–95, 2004–07, 2020–24 — and then the dead years in between. His own painful example is 2008 to 2013.

as a mutual fund manager from 2004 there was a period from 2008 to 13 where we felt irrelevant because there was no money coming into the mutual fund industry… you saw the industry shrinking

Pure equity funds, he argues, are wonderful for the fat years and useless for the lean ones. SIFs are SEBI’s answer to the lean years — a product category designed to keep working when the market hands you mediocre returns. Think of it like a vehicle built for bad roads rather than the highway.

Where do SIFs sit? Between mutual funds and PMS (Portfolio Management Services). A mutual fund is mass-market and tightly regulated. A PMS is for the wealthy with a much higher entry. The SIF splits the difference: a 10-lakh minimum, but with access to long-short strategies and hedging tools that plain mutual funds were never allowed to use.

The two products he’s launching

ICICI Pru is rolling out two SIFs. The first is an active asset allocator — and the selling point is freedom. Most fund categories come with a regulatory straitjacket: a multi-asset fund must hold at least 10% in commodities, an equity fund must hold 65% in stocks. This allocator has none of that. No mandatory gold, no mandatory equity floor (beyond keeping it above 35% to preserve favourable tax treatment after two years).

Naren leans on his “guru,” fund manager James Montier, for the principle:

if you do constrained investing… technology in 2000 infrastructure in 2007 — constrained investing doesn’t lead you to good long-term returns. So unconstrained is always the best.

The idea: when a rule forces you to hold something, you get trapped holding it at exactly the wrong time. A “buy it, shut it, forget it” product, in his words — provided you trust the manager.

How does he decide the equity slice? Two tools. One is a price-to-book-value model. He prefers book value over earnings because earnings whip around violently — they spiked in 2007, collapsed in 2008, collapsed again in 2020 — while book value stays comparatively steady. Imagine measuring someone’s wealth by their bank balance (book value) rather than their last month’s paycheck (earnings); one is far less jumpy. The second tool is corporate-earnings-to-GDP, which historically tops out around 5% in India and is currently near that ceiling — a signal he reads as “not much upside left here, returns from here are likely moderate.” The exception he names: if India suddenly became an AI winner the way Korea and Taiwan did, that ratio could break out. He doesn’t see it.

On commodities, this fund goes beyond gold and silver into oil, aluminium, and copper via exchange-traded derivatives — but only in small sizes, because liquidity dries up fast. Useful as a hedge against shocks (another oil spike, say), not as a place to park serious money.

The “long-short” fund that won’t short

The second product is an equity long-short SIF — 80% in equity and equity-related instruments, positioned as a conservative flexi-cap. And here comes the most candid moment of the interview: the fund has “short” in its name, but he’s not going to short anything right now.

Every day when we go home in the evening, we think what will happen in the evening to the war… imagine you go home and you know that the complete war has be ended. What would I do that night? Me and all my colleagues in the SIF team would not be able to sleep that night.

A naked short position can blow up overnight on a single headline. With wars and geopolitical shocks in the air, he won’t take that risk — it would turn his team into “a 24 by 7 wreck.” Instead he’ll use gentler hedging: writing covered calls, writing puts against cash the fund already holds. He’s explicit that this is a temporary stance, not a permanent one, and that they’ll tell investors via monthly notes if it changes.

He also bats away the worry that 80% equity makes this riskier than a normal 65%-equity flexi-cap. The trick is that “equity and equity-related” includes hedged positions — you can hold 65% real equity and use the remaining 15% as a hedge, so the net exposure isn’t necessarily more aggressive.

Who it’s for, and who it isn’t

Naren repeats his exclusions almost like a mantra. Two kinds of people should stay away: those expecting 20%-plus a year, and those who think this is a capital-protected fixed deposit.

we launched two products in the month of January end and March showed that it is not a fixed deposit

He’s almost relieved that an early wobble proved the point. The target investor is someone who can stomach monthly volatility, thinks in years not days, checks their NAV annually rather than daily, and — crucially — has been through both ups and downs in the market before. A seasoned hand looking for a smoother ride, not a thrill or a guarantee.

Key Takeaways

SIF = Specialized Investment Fund, a new SEBI category sitting between mutual funds and PMS, with a 10-lakh minimum ticket. It unlocks long-short and hedging tools mutual funds couldn’t use.
The core thesis: equity funds excel in high-return market regimes; SIFs are designed for moderate-return regimes — the long flat stretches like 2008–2013.
Naren’s two repeated exclusions: don’t buy if you expect >20% per annum, and don’t buy thinking it’s a capital-protected fixed deposit.
Unconstrained beats constrained (his James Montier principle): mandatory allocations — tech in 2000, infra in 2007, the 10% commodity floor in multi-asset funds — trap you into holding the wrong thing at the wrong time.
The asset allocator fund has no mandatory gold/silver and no 65% equity floor, but keeps equity above 35% to preserve long-term capital gains tax treatment after two years.
Book value over earnings for allocation models: earnings are volatile (spiked 2007, crashed 2008 and 2020); book value is steadier. ICICI Pru already uses this in its balanced advantage fund.
Corporate-earnings-to-GDP is a top-down valuation gauge; ~5% has been the historical ceiling in India and it’s near that now — read as limited upside. Korea and Taiwan broke past it via a tech/AI boom; India hasn’t.
Valuing gold/silver, which have no yield or interest rate, is done via ratios — Nifty-to-gold, S&P 500-to-gold, S&P 500-to-silver.
Commodity exposure (oil, aluminium, copper, gold, silver) is via exchange-traded derivatives, useful only in small sizes because of liquidity limits.
The “long-short” fund won’t actually short at launch — geopolitical/overnight risk makes naked shorts too stressful. It’ll use covered calls and cash-backed puts instead, and disclose any change via monthly notes.
80% equity doesn’t necessarily mean riskier than a 65%-equity flexi-cap, because “equity and equity-related” includes hedged positions netting down real exposure.
REITs and InvITs stay minor in all their funds — the Indian REIT market is too small and valuations too rich to be a meaningful allocation.

Claude’s Take

This is a sponsored-feeling product walkthrough dressed as an interview — the interviewer’s “pushbacks” are soft and mostly serve as setups for Naren to make his points. So calibrate accordingly: it’s a fund house explaining its own new launch, not a neutral assessment of whether you should buy.

That said, Naren is a genuinely respected contrarian and the conversation has more honesty than most launch pitches. The standout is the long-short fund that openly admits it won’t short — that’s a real, slightly awkward disclosure, and he handles it with an unusually human reason (the team won’t sleep). The repeated “this is not a fixed deposit, this is not 20% a year” framing is also refreshingly anti-hype in an industry that usually does the opposite.

The thinking that holds up independently of the sales context: the regime argument (different products for different market weather), the book-value-over-earnings preference, the corporate-earnings-to-GDP ceiling, and the unconstrained-investing principle. Those are durable mental models worth keeping regardless of whether you ever touch a SIF.

The soft spot is the “buy it, shut it, forget it — just trust us” pitch. The entire value proposition collapses into trusting the manager’s discretion, with the explicit promise that they’re not bound by a published model. That’s fine if you rate the manager highly; it’s also exactly the kind of black-box discretion that’s hard to evaluate or hold accountable. A 7: substantive, candid for its genre, but it’s a fund house talking its own book, and you should weigh it as such.