Mutual funds vs SIF, PMS and AIF
Mutual funds and three other SEBI-regulated products, compared on structure, minimum, tax, exit and sale
Rules as on 12 October 2026
Verified 12 October 2026
For training and education only. Not investment advice.
Trainer notes
Older training material compared 'hedge funds' with mutual funds, using American terms and dollar figures. In India the comparison a client meets is between these four. This deck describes how each is built. It does not rank them.
The four differ in what you own, the minimum you put in and who is taxed. None is a higher grade of another.
A larger minimum investment is a rule about entry. It is not a sign of lower risk or of a different result. Returns are not assured in any of the four.
Trainer notes
Set the tone here. Clients often read the ladder of minimums as a ladder of quality. SEBI's minimums say who may enter, nothing more. All four carry market risk.
What each one is
- MF
Mutual fund
Money from the public is pooled in a scheme. Each investor holds units of the scheme.
- SIF
Specialized fund
A product inside the mutual fund framework, under a separate brand. Pooled, with units. Seven long-short strategies.
- PMS
Portfolio service
A service, not a fund. Each client has an account in their own name and owns the securities in it.
- AIF
Alternative fund
A privately placed pooled fund in one of three categories. Investors hold units, issued in demat form.
Sources: SEBI Master Circular for Mutual Funds, 20 Mar 2026 (Ch. 21 for SIF); SEBI (Portfolio Managers) Regulations, 2020; SEBI (AIF) Regulations, 2012.
Trainer notes
SIF stands for Specialized Investment Fund, PMS for Portfolio Management Services and AIF for Alternative Investment Fund. The SIF framework came from a SEBI circular of 27 February 2025. PMS may be discretionary, non-discretionary or advisory. AIF Category I covers venture capital and similar funds, Category II covers funds such as private equity and private credit, Category III covers funds with complex trading strategies that may use leverage.
The minimum SEBI sets for each
| Minimum (₹ lakh) | |
|---|---|
| SIF | 10 |
| PMS | 50 |
| AIF | 100 |
Read the chart
- Mutual fund: SEBI sets no figure. Each scheme states its own minimum.
- SIF: ₹10 lakh across all strategies of that SIF, counted by PAN.
- PMS: ₹50 lakh per client. AIF: ₹1 crore per investor.
- Accredited investors are exempt from the SIF, PMS and AIF minimums.
Sources: SEBI Master Circular for Mutual Funds, 20 Mar 2026, para 21.4; SEBI (Portfolio Managers) Regulations, 2020; SEBI (AIF) Regulations, 2012, reg. 10(c).
Trainer notes
Holdings in the same fund house's regular mutual fund schemes do not count towards the SIF's ₹10 lakh. In an AIF, employees and directors of the fund or its manager may invest from ₹25 lakh, and a much lower minimum applies to social impact funds. The PMS minimum may be brought in as funds or securities. An accredited investor is one who meets SEBI's income or net-worth tests.
What you hold and how it is offered
| What the investor holds | How it is offered | |
|---|---|---|
| Mutual fund | Units of a pooled scheme. The scheme owns the securities. | To the public, through a scheme information document. |
| SIF | Units of a pooled investment strategy. | By an eligible fund house, through an investment strategy information document. |
| PMS | The securities themselves, in the client's own name. Nothing is pooled. | Under an agreement between the client and the portfolio manager. |
| AIF | Units of a privately placed fund, not its underlying investments. | Private placement only, by memorandum. At most 1,000 investors in a scheme. |
Sources: SEBI Master Circular for Mutual Funds, 20 Mar 2026; SEBI (Portfolio Managers) Regulations, 2020; SEBI (AIF) Regulations, 2012.
Trainer notes
In discretionary and non-discretionary PMS a custodian holds the securities in safekeeping; neither the manager nor the custodian becomes the owner. Accredited investors are not counted in the AIF limit of 1,000 investors. A fund house needs SEBI's approval and must meet eligibility conditions before it offers a SIF.
One sale, taxed in two ways
THE SAME TRADE
Listed shares bought for ₹4,00,000 are sold eight months later for ₹5,00,000.
Case A: a PMS manager sells for a client.
Case B: a mutual fund sells.
- Gain on the sale: ₹5,00,000 − ₹4,00,000 = ₹1,00,000. Held for 12 months or less, so short-term.
- Case A: the client owns the shares, so the gain is the client's. Tax at 20%: ₹1,00,000 × 20% = ₹20,000.
- Case B: the unit holder has sold nothing. The gain shows up in the scheme's NAV.
- The unit holder's own capital gain arises later, when the units are redeemed, on the units' gain.
Result: In PMS each sale in the account is the client's taxable event. In a fund it is the redemption of units.
Illustration with assumed figures. Tax shown before surcharge and cess. Not tax advice.
Trainer notes
The 20% rate is the short-term rate on listed shares where securities transaction tax is paid. A SIF follows the mutual fund pattern: the investor's gain arises when units are redeemed or sold. This slide describes the mechanism only. A client's tax working is for a tax professional.
Tax: in whose hands
| Who is taxed, and when | Point to note | |
|---|---|---|
| Mutual fund | The investor, when units are redeemed or switched, and on income distributions. | The rate depends on what the scheme holds and for how long units were held. |
| SIF | The investor, on the same rules as a mutual fund. | Derivative positions do not count towards the 65% equity test. |
| PMS | The client, on each sale in the account. | Many sales in a year mean many gains to report. |
| AIF Category I, II | The investor, as if the investment were made directly (pass-through). | Business income is the exception: it is taxed at the fund level. |
| AIF Category III | Generally the fund. No pass-through. | The investor receives income after the fund has borne tax. |
Source: Income-tax Act, 2025, s.196, s.198 and s.224 (investment funds). Not tax advice.
Trainer notes
A scheme counts as equity-oriented for tax when it holds at least 65% in listed domestic equity shares. For such units: 20% on gains if held 12 months or less; 12.5% on gains above ₹1.25 lakh a year if held longer. Units of schemes with more than 65% in debt, bought on or after 1 April 2023, are taxed at the investor's slab rate whatever the holding period. Do not compare the four on 'tax efficiency'; describe the rule and refer the client to a tax professional.
Getting money out
Mutual fund (open-ended)
Units can be redeemed on any business day. Proceeds are paid within three working days. An exit load of up to 3% may apply.
SIF
Per strategy: daily for equity, weekly for debt, twice weekly for hybrid, or less often if the AMC decides. Up to 15 working days' notice may apply.
PMS
No lock-in; withdrawals follow the agreement and must leave the minimum. Any exit load is capped at 3%, 2%, 1% in years one to three.
AIF
Category I and II are close-ended, for at least three years, and do not redeem on request. Category III may be open-ended or close-ended.
Sources: SEBI Master Circular for Mutual Funds, 20 Mar 2026 (paras 15.3, 21.7); SEBI Master Circular for Portfolio Managers; SEBI (AIF) Regulations, 2012, reg. 13.
Trainer notes
Exceptions: mutual fund schemes with 80% or more overseas pay within five working days, and close-ended schemes and ELSS have their own terms. Close-ended and interval SIF strategies must be listed on an exchange, though trading may be thin. Units of a close-ended AIF may be listed after final close with a minimum lot of ₹1 crore; in practice AIF units are usually illiquid. The PMS exit-load caps do not apply to large-value accredited investors.
Who may sell each one
- MF
ARN holder
NISM certificate (Series V-A or V-D) and registration with AMFI. Paid by trail commission.
- SIF
ARN + Series V-D
AMFI registration and a valid NISM certificate, Series V-D, which also covers mutual funds.
- PMS
APMI-registered
NISM Series XXI-A certificate and registration with APMI. No upfront commission; trail only.
- AIF
Private offer
Offered privately. A direct plan must be available. Category III pays trail commission only.
Take-away: An ARN alone covers mutual funds only. SIF and PMS need more; AIF has voluntary NISM exams.
Sources: SEBI circular of 21 Jul 2026 (SIF certification); SEBI Master Circulars for Portfolio Managers (16 Jul 2025) and AIFs (3 Jun 2026); AMFI.
Trainer notes
ARN is the AMFI Registration Number. APMI is the Association of Portfolio Managers in India. Holders of a valid ARN or Series V-A certificate on 7 September 2021 are exempt from Series XXI-A until that registration or certificate expires, but still need APMI registration. NISM Series XIII no longer applies to SIFs after 21 September 2026; earlier holders are covered until expiry. In Category I and II AIFs up to one-third of the commission may be paid upfront. For AIFs NISM offers Series XIX-A and XIX-B, listed as voluntary. Whoever sells any of these distributes; none of these certificates makes a person an investment adviser.
If you learnt this from older material
What older decks say
- Hedge funds are virtually unregulated.
- Mutual funds cannot take short positions.
- Entry is set by dollar tests for US investors.
What holds now
- In India such funds register with SEBI as Category III AIFs.
- Schemes may hedge with derivatives and short under stock lending.
- SEBI sets rupee minimums: ₹10 lakh, ₹50 lakh, ₹1 crore.
Take-away: A SIF may hold unhedged short derivative positions up to 25% of net assets. It may not use leverage.
Sources: SEBI Master Circular for Mutual Funds, 20 Mar 2026 (para 13.6.1, Ch. 21); SEBI (AIF) Regulations, 2012.
Trainer notes
The SIF framework dates from a SEBI circular of 27 February 2025, so older material does not mention it. A SIF's gross exposure, counting securities and derivatives together, cannot exceed 100% of net assets. A Category III AIF may use leverage up to two times its NAV. Fees also differ from the American '2 and 20' shorthand: PMS fees are fixed, performance-linked or both as agreed with the client, and AIF fee terms are set in the placement memorandum. Do not quote 'typical' fees.
Four things people get wrong
Misconception'A higher minimum means lower risk.'
What is trueThe minimum is an entry rule. A Category III AIF, with the highest minimum, may use leverage, which can magnify losses.
Misconception'A SIF is a hedge fund for ₹10 lakh.'
What is trueIt is a mutual fund product. Gross exposure is capped at 100% of net assets, so there is no leverage.
Misconception'PMS is a kind of fund.'
What is trueIt is a service on an individual account. The client owns each security and is taxed on each sale.
Misconception'Every AIF locks money for ten years.'
What is trueSEBI's rule for Category I and II is close-ended with at least three years. The actual term is in each fund's placement memorandum.
Sources: slides 3, 7, 8 and 10; SEBI Master Circular for Mutual Funds, 20 Mar 2026, Ch. 21; SEBI (AIF) Regulations, 2012, reg. 13.
Trainer notes
On the second point, SIF advertisements and promotional material must carry a standard warning that they involve relatively higher risk, including potential loss of capital, liquidity risk and market volatility. On the fourth, the actual term of a fund may well be longer than three years; the point is that the figure is a fund term, not a SEBI rule.
Check yourself
Question 1: An investor holds ₹6 lakh in one strategy and ₹4 lakh in another strategy of the same SIF, and ₹8 lakh in that fund house's regular schemes. Is the SIF minimum met?
Answer: Yes. ₹6 lakh + ₹4 lakh = ₹10 lakh across the strategies of that SIF, which is the minimum. The ₹8 lakh in regular mutual fund schemes does not count either way.Question 2: A PMS manager sells listed shares in a client's account after 5 months at a gain of ₹2,00,000. Who has the gain, and what is the tax at 20% before surcharge and cess?
Answer: The client, because the client owns the shares. ₹2,00,000 × 20% = ₹40,000. This is short-term because the shares were held for 12 months or less.Question 3: A client says: 'AIFs need ₹1 crore, so they must be the top-quality option.' How do you respond?
Answer: The minimum is SEBI's entry rule, not a quality grade. Explain what an AIF is: privately placed, usually illiquid, in three categories with different rules, and Category III may use leverage. We describe the structures; we do not rank them.
Trainer notes
Question 2: the 20% rate applies to short-term gains on listed shares where securities transaction tax is paid.
Sources and disclaimer
Sources for the figures in this explainer
- SEBI Master Circular for Mutual Funds, 20 March 2026, including Chapter 21 (Specialized Investment Funds); SEBI circular of 21 July 2026 on SIF distributor certification.
- SEBI (Portfolio Managers) Regulations, 2020, as amended to 3 September 2025; SEBI Master Circular for Portfolio Managers, 16 July 2025.
- SEBI (Alternative Investment Funds) Regulations, 2012, as amended to 14 July 2026; SEBI Master Circular for AIFs, 3 June 2026.
- Tax: Income-tax Act, 2025, as summarised in Trustner Academy's verified fact sheet, 7 October 2026 (partly from secondary sources).
- Trustner Academy's SIF, PMS and AIF lessons and investments fact sheet were used as working references.
- The trade in the example and the investors in the quiz are invented. Figures are assumed.
This material is for training and investor education only. It is not investment, tax or legal advice and is not a recommendation to buy, sell or hold any security or scheme. Examples use assumed figures unless a source and date are shown. Mutual fund investments are subject to market risks; read all scheme related documents carefully. Trustner Asset Services Pvt. Ltd. is an AMFI-registered Mutual Fund Distributor (ARN-286886).
Trainer notes
Open the primary documents before quoting any figure. Tax points describe the law and are not tax advice. Several tax points rest on secondary summaries; confirm section numbers before quoting them to clients.