There is a mandatory hurdle to be cleared—the National Institute of Securities Markets’ NISM XIII (derivatives) exam to get a permit for SIF distribution. The exam is a tougher nut to crack as compared to the mutual fund distributor exam, the NISM VA, multiple industry participants told Mint.
There are over 1,000 distributors who have cleared the NISM XIII derivatives exam and applied for SIF registration as of 19 September, data by CAMS shows. The number of mutual fund distributors (MFD), on the other hand, is much higher at 1.8 lakhs.
The Securities and Exchange Board of India had in February launched SIF, a product to bridge the gap between retail-focused mutual funds and portfolio management services (PMS) that target the rich. The minimum ticket size for an SIF is ₹10 lakhs, while that for a PMS is ₹50 lakhs. SIF is designed for investors who want to take higher risks than a mutual fund.
As of now, Edelweiss Mutual Fund has announced the launch of Altiva Hybrid Long-Short Fund, the new fund offer (NFO) for which will open for subscription on 1 October. Quant Mutual Fund has announced the QSIF Equity Long-Short Fund, which is open for subscription currently. SBI Mutual Fund and Mirae Asset Investment Managers have also announced the brand names for their SIFs but are yet to launch their funds.
What makes the new exam tougher?
People who appeared for the derivatives exam say that it very technical with more calculations than the basic MFD exam. Moreover, the NISM XIII derivatives exam has a negative marking of 25% assigned to every question. The basic NISM VA mutual fund exam does not have any negative marking.
Suraj Shroff, founder of Infiniti Investments and a mutual fund distributor, who recently appeared for the NISM XIII exam, said unlike the basic MFD exam—which mostly covers regulations and can be cleared by reading the material a few times—the derivatives exam involves technical concepts such as put, call, and other concepts.
“For those who deal with stock and currency derivatives products regularly, the exam is manageable. But for the ones who are reading the exam material and attempting the exam, it is difficult to pass without enough practice,” Shroff added.
Moreover, the derivatives exam has application-based numericals, said Shrey Mehta, director at Sanjay Mehta Financial Services. For example, one may be asked what happens to the value of a put if you buy it at a certain price and the value of the underlying moves from point A to point B, Mehta said.
Emails sent to NISM and Sebi on the new exam remained unanswered till press time.
Indeed, the low distributor numbers due to the stringent requirements could be an issue for the new product to take off. SIFs will not be fully understood by every distributor, said Amit Sahita, director at Fincode Advisory Services. “Out of 1.8 lakh distributors, fewer than 10,000 at present will get SIF-registered, that’s less than 5% which will be a very small percentage of distributors to start with.”
“It will take time, as mutual funds are retail products and distributors already have a strong understanding there. But in SIFs, it is about derivatives that may require some specialized training,” said Deepak Jain, president and head – sales at Edelweiss Asset Management Ltd.
Why the need for a stringent test?
The SIF exam is rigorous for a reason, as it caters to sophisticated investors.
According to Venkat N. Chalasani, chief executive of the Association of Mutual Funds of India, since the SIF is an evolved product, it is important that the person distributing it understands its structures, trading strategies, risk management and the regulatory environment. “Hence, the difficulty level of the exams prescribed for MFDs selling SIFs is high,” he added.
Suranjana Borthakur, head of distribution & strategic alliances at Mirae Asset Investment Managers (India) echoes his view and says that the exam being more rigorous is a positive and the higher standards will raise the quality of distribution and strengthen investor trust.
“Every new category in the industry takes time to build scale, and SIFs are no different. Just as the number of application reference number for MF distributors (ARN) holders has steadily increased over the years, the base of SIF distributors will also grow with awareness and confidence,” Borthakur added.
The real scaling of SIFs will start when mutual funds start launching multiple funds under SIFs, say experts. Currently, with only two funds available, investors might not be able to diversify. With at least 10-15 products across 5-7 AMCs, with each AMC offering 2–3 different SIF strategies, investors can diversify across schemes and feel more comfortable despite the lack of track records, Shrey added.
In the past too, similar exams had met with disappointment. One such was Sebi’s mandatory exam for Alternative Investment Funds (AIFs). In 2024, Mint had reported that 60 of the 100 executives failed the exam required for AIFs to keep their registration going.
Learning to crack the exam
In order to keep pace with the supply of SIFs, AMCs are training their distributors to appear and clear this exam. Jain of Edelweiss said since the main challenge for scaling up SIFs initially would be the limited number of distributors, AMCs (asset management companies) like his own are training their people.
As a result, the number of people who have passed the derivatives exam and applied for SIF registration has gradually picked up from 248 in July to 1,009 as of September, said Syed Hassan, chief program officer from CAMS. “In September, registrations were coming in at the pace of 1–2 every half hour,” he said.
“We have conducted physical three-day programmes along with online sessions to help distributors appear and clear the derivatives exam. So far, we have trained over 2,000 distributors across India,” said Jain of Edelweiss MF.
The training, however, is focused entirely on helping them clear the derivatives exam—covering modules on equities, fixed income, and currency—without touching upon product details, Jain added.
Distributors outside major cities are also facing practical challenges. In some tier-3 locations and beyond, candidates have to wait weeks for exam slots due to limited test centres, a person familiar with the matter said.
SBI MF is assisting their distributors with easy-to-read content modules and getting the slots available for their examinations with NISM, said D.P. Singh, deputy managing director and joint chief executive officer of SBI Mutual Fund. He said with the evolution of the industry and investors, there will be lot of interest coming from both distributors and investors, and there is a huge potential for scaling up of hybrid long-short funds and the SIF category in future.
Hassan of CAMS said SIF is new territory for many distributors, but the 1,000+ who have already cleared the exam have shown it is achievable. “As word spreads, more will join in, drawn by the large opportunity, high ticket sizes, and the momentum of upcoming launches,” he added.
Risk of mis-selling SIFs
Some industry participants have flagged the risk of mis-selling and say the entry rigour would help avert it. SIFs typically carry higher distributor commissions because their total expense ratio (TER) is higher in the initial stages as the fund size will be smaller.
“Old-school distributors may focus on these commissions and push SIFs aggressively. For example, persuading a client with just a ₹10 lakh portfolio to invest the entire amount into a single SIF,” said Sahita of Fincode Advisory.
New-age advisers with a long-term approach will recommend SIFs only to clients with portfolios above ₹1 crore, where such investments are more suitable. “They are focused on building client relationships over decades, not chasing short-term gains,” Sahita added.
