Initiators and investors looking to set up a fund in Luxembourg are curious as to which investment vehicle is a better option: a Reserved Alternative Investment Fund (RAIF) or a Specialized Investment Fund (SIF). There are many factors that may influence your choice between these two vehicles, including the profile and origin of investors, best time to market, target capital amount, legal form, management, marketing efforts, and many more.
These two investment vehicles may look similar at first glance.
Reserved Alternative Investment Fund of Specialized Investment Fund ?
Both Reserved Alternative Investment Fund (RAIF) and Specialized Investment Fund (SIF) have the ability to invest in all asset types, offer a large selection of legal forms, and the possibility to be formed as an investment capital with variable capital (SICAV).
Typically, Specialized Investment Funds (SIFs) may be categorized as alternative investment fund (AIF), while a Reserved Alternative Investment Fund in its essence, is an alternative investment fund (AIF). Both investment vehicles enjoy the same tax treatment in Luxembourg.
Now on to their differences. A Specialized Investment Fund (SIF) is a regulated vehicle that requires prior authorization from Luxembourg’s Commission for the Supervision of the Financial Sector (CSSF) for successful establishment. Therefore, establishing a Specialized Investment Fund (SIF) involves a longer process compared to Reserved Alternative Investment Fund (RAIF) establishment. The quick and straightforward set-up process of a Reserved Alternative Investment Fund (RAIF) is one of the reasons why it was introduced into the Luxembourg legal system.
Reserved Alternative Investment Fund (RAIF) as an investment vehicle does not require authorization nor direct supervision from the Commission for the Supervision of the Financial Sector (CSSF). This characteristic of a Reserved Alternative Investment Fund (RAIF) offers flexibility throughout its lifecycle. Changes made on documentations does not necessitate the approval of the Commission for the Supervision of the Financial Sector (CSSF).
Another crucial difference between these two vehicles which most often directs most investors to choose a Specialized Investment Fund (SIF) is that it can be managed externally or internally by an Alternative Investment Fund, whereas a Reserved Alternative Investment Fund (RAIF) can only be managed by an external Alternative Investment Fund Manager (AIFM), with the exception of Reserved Alternative Investment Funds operating with public interest in mind and managed by supranational organizations. Internally managed investment funds may not be as beneficial in the long run for investors as the fund managers are not granted passporting rights under the Alternative Investment Fund Manager Directive (AIFMD).
Lastly, a Reserved Alternative Investment Fund is chosen as an entry investment vehicle to take advantage of the ideal time to market. At some point in time, majority of Reserved Alternative Investment Funds are transformed into Specialized Investment Funds as it offers more long-term benefits to both the initiator and investors. The Reserved Alternative Investment Fund structure also functions as a co-investment vehicle alongside Specialized Investment Fund due to its greater flexibility characteristics.
Reserved Alternative Investment Fund (RAIF) and Specialized Investment Fund (SIF) Comparison Table
| SIF (Specialized Investment Fund) | RAIF (Reserved Alternative Investment Fund | |
| Applicable Law | Law of 13 February 2007 | Law of 27 November 2015 |
| Supervision by the CSSF |
Yes |
Not as a product, but a Reserved Alternative Investment Fund must be managed by an Alternative Investment Fund Manager established in Luxembourg or in another EU member state under Chapter II of 2011/6 EU. |
| European Passport | Yes, if under the Alternative Investment Fund Manager Directive | Yes, as it is subject under the Alternative Investment Fund Law |
| Legal Forms Available |
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| Corporate Forms Available |
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| Custodian Requirements | Yes, if established in Luxembourg | Yes, if established in Luxembourg |
| Central Administration | Yes, if established in Luxembourg | Yes, if established in Luxembourg |
| Risk Diversification |
Yes, with quantitative restrictions |
Reserved Alternative Investment Fund investing in risk capital: No
Reserved Alternative Investment Fund not investing in risk capital, Yes but no minimum level of diversification. |
| Eligible Assets |
Unrestricted |
Reserved Alternative Investment Fund investing in risk capital: Restricted
Reserved Alternative Investment Fund not investing in risk capital: Unrestricted |
| Eligible Investors | Limited to well-informed investors | Limited to well-informed investors |
| Issuing Document Required | Issuing document | Issuing document |
| Compartments | Yes | Yes |
| Maximum Number of Shareholders | No limit | No limit |
| Minimum Number of Shareholders | No minimum | No minimum |
| Minimum Share Capital/Net Assets | Yes, EUR 1,250,000 to be fulfilled within 12 months of authorization by the Commission for the Supervision of the Financial Sector (CSSF). |
Yes, EUR 1,250,000 to be fulfilled within 12 months of incorporation. |
| Multiple Share Classes | Yes | Yes |
| Net Asset Value (NAV) Calculation | Net Asset Value Required for reporting purposes once a year. | Net Asset Value Required for reporting purposes once a year. |
| Redemption Upon Request of Investors | Upon decision | Upon decision |
| Borrowing Restrictions | Yes | Yes |
| Listing | Yes, but subject to specific restrictions as to the eligibility of investors. | Yes, but subject to specific restrictions as to the eligibility of investors. |
| Audit | Yes, by a Luxembourg auditor | Yes, by a Luxembourg auditor |
| Corporate Income Tax | No | By rule, no, unless a Reserved Alternative Investment Fund is investing in risk capital |
| Double Tax Treaties | Depending on the jurisdiction of target companies. | Depending on the jurisdiction of target companies. |
| Subscription Tax | No | In principle, yes |
| Capital Gains Tax | No | No |
| Wealth Tax | No | No |
| Withholding Tax on Profit Distribution | No | No |
| Withholding Tax on Interest | No | No, except in EU saving Directive applications |
| VAT (17%) | Yes, with exemption | Yes, with exemption |
Damalion is an independent consulting firm expert guidance to investors looking to establish an investment vehicle in Luxembourg. Reach out to a Damalion expert today to learn about the Reserved Alternative Investment Fund and Specialized Investment Fund regimes.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
Luxembourg RAIF vs SIF: which framework fits your strategy?
Two proven frameworks for professional investors in Luxembourg are the RAIF (Reserved Alternative Investment Fund) and the SIF (Specialised Investment Fund). Both work across private equity, venture capital, private debt, real estate, and infrastructure. Below we explain the differences in supervision, time-to-market, governance (AIFM, depositary), tax touchpoints, and reporting—plus a concise decision checklist to help you choose on substance, not just form.
What are you really choosing between RAIF and SIF?
- Regulatory posture: do you require product-level pre-approval (SIF) or is AIFM-led oversight sufficient (RAIF)?
- Timing: do you need weeks not months to launch (RAIF)?
- Investor signaling: does your anchor insist on a regulated product (SIF)?
- Cost and documentation: what budget do you allocate to supervision, reporting, and ongoing legal administration?
RAIF and SIF side-by-side (practical view)
| Dimension | RAIF | SIF |
|---|---|---|
| Product approval | No product pre-approval; AIFM and depositary are mandatory. | Product-level oversight by the CSSF; AIFM and depositary also required. |
| Time-to-market | Typically faster launch—suited to time-sensitive strategies. | Longer runway—useful where a regulated product status is preferred. |
| Forms | SCSp (contractual partnership), Sàrl, SA, SCA; umbrella with sub-funds possible. | Similar flexibility, with more detailed disclosure and reporting duties. |
| Investor base | Professional/qualified investors; widely understood by global LPs. | Professional/qualified investors; attractive to institutions seeking product-level regulation. |
| Tax themes | Commonly fund-level exemptions with a NAV-based taxe d’abonnement; HoldCo/SPV architecture drives outcomes. | Comparable logic; regulated status may add ongoing administrative costs. |
| Use case | Platform needing quick start and multiple sub-funds across strategies. | Mandates where a regulated product and deeper supervision are a must. |
Related reading inside Damalion: an overview of Luxembourg parallel funds, the advantages and challenges of parallel funds, how to launch a master–feeder structure, steps for establishing a private equity structure, and choosing Soparfi vs SPF for the holding layer.
Tax & substance: issues to address early
- Fund layer: confirm any taxe d’abonnement, currency and hedging policies, and transparency features by form.
- HoldCo/SPV: participation exemption conditions, source-country withholding, beneficial owner tests, treaty access.
- Financing: interest limitation, anti-hybrid rules, transfer pricing; document arm’s-length leverage.
- Substance: decision-making in Luxembourg, independent directors, adequate resources, minute books and procedures.
Decision tree: which framework “wins” for your case?
- Timing: if your launch window is tight → RAIF.
- LP expectations: if anchors require product-level regulation → SIF.
- Platform design: if building a multi-sub-fund platform → both work; weigh governance workload.
- Budget: if you need a leaner initial build → RAIF typically carries lower launch friction.
- Distributions: write distribution mechanics in plain language—minimum return (hurdle), catch-up, carried interest, and clawback—avoid unexplained acronyms.
Also see our guidance on parallel fund architectures and master–feeder launches if you plan multi-vehicle deployments.
FAQ – what sophisticated investors ask us
Can a RAIF be converted into a SIF later?
Yes, but it requires a coordinated process with counsel, refreshed documentation, and supervision steps—plan timeline and costs upfront.
How does the AIFM choice affect EU marketing?
An EU AIFM with marketing passport opens cross-border channels; a third-country AIFM limits those pathways.
Are digital assets feasible under both frameworks?
Yes—provided depositary, valuation, and risk controls are robust. In practice, RAIF is often preferred for speed to market.
How do we set NAV frequency and audit from day one?
Define valuation methodology, sources, and NAV cadence; agree checkpoints with the administrator early.
What commonly delays bank account openings?
Opaque ownership chains, weak local substance, inconsistent contracts, and incomplete KYC/AML—clean these before approaching banks.
References: CSSF (Luxembourg regulator) · ESMA
