SIFs gain momentum as AMCs introduce hybrid, equity, debt long short funds; What investors should know

SIFs will provide a diverse range of investment strategies across equity, debt, and hybrid asset classes, offering investors tactical opportunities suited to varying market conditions.

Within the equity segment, three primary strategies will be available — the Equity Long-Short Fund, the Equity Ex-Top 100 Long-Short Fund, and the Sector Rotation Long-Short Fund.

Equity Long-Short Fund: This strategy will invest at least 80% of its portfolio in equity and equity-related instruments, while allowing up to 25% short exposure through unhedged derivative positions. The goal is to capture gains from both rising and falling markets while maintaining a strong equity core.

Equity Ex-Top 100 Long-Short Fund: Focused on mid- and small-cap opportunities, this fund will allocate a minimum of 65% to equities excluding the top 100 companies by market capitalization. Similar to the previous strategy, it can take a maximum 25% unhedged short exposure in non-large-cap stocks to enhance alpha generation and manage downside risk.

Sector Rotation Long-Short Fund: Designed to leverage cyclical sector trends, this strategy will invest at least 80% in equity and equity-related instruments across a maximum of four sectors, with flexibility for up to 25% short exposure through unhedged derivatives.

The debt category will feature two strategies — the Debt Long-Short Fund and the Sectoral Debt Long-Short Fund — focusing on managing duration, yield curve movements, and credit spreads through both long and short positions.

Similarly, the hybrid category will include two strategies — the Hybrid Long-Short Fund and another variant — combining equity and fixed-income exposures to balance growth potential with income stability.

Hot favourite

Since receiving approval from the market regulator in April, Specialised Investment Funds (SIFs) have emerged as one of the most talked-about innovations in India’s investment landscape. Eight asset management companies (AMCs) have already launched SIFs, offering investors a fresh tactical allocation tool that bridges the gap between traditional mutual funds and portfolio management services (PMS).

These funds are designed to act as “satellite” investments—complementing core equity and debt portfolios by adding a layer of diversification and risk-managed alpha. Most SIFs in the market currently target arbitrage-plus returns, typically 100–200 basis points higher than conventional fixed-income or arbitrage funds. Investors can expect annualised returns in the range of 6–8%, depending on market performance and the fund’s chosen strategy.

Bridging MFs and PMS

SIFs offer the flexibility and strategic edge of PMS with the accessibility of mutual funds. The minimum investment requirement of ₹10 lakh is significantly lower than the ₹50 lakh typically needed for PMS accounts, making these funds accessible to a wider segment of affluent investors.

The structure is particularly suited to those who value stability, liquidity, and predictability while seeking enhanced risk-adjusted returns. Positioned between arbitrage and hybrid categories, SIFs provide a dynamic alternative for investors looking to fine-tune their asset allocation.

Multiple strategies

Unlike traditional mutual funds that primarily follow long-only strategies, SIFs can employ a wider range of investment techniques—including long–short equity positions, tactical sector rotation, derivatives-based risk management, and multi-asset diversification.
Currently, SIFs are being offered across three broad categories—equity, debt, and hybrid, each with distinct strategy variations:

Equity-oriented SIFs:

Equity Long-Short Fund: Requires a minimum of 80% investment in equities with a maximum 25% unhedged short exposure.

Equity Ex-Top 100 Long-Short Fund: Focuses on mid- and small-cap segments, with at least 65% in equities excluding the top 100 stocks by market capitalisation, and up to 25% short exposure.

Sector Rotation Long-Short Fund: Invests primarily in up to four sectors, maintaining 80% exposure to equities and 25% short exposure.

Debt-Oriented SIFs: Debt Long-Short Fund and Sectoral Debt Long-Short Fund deploy duration and credit management strategies using derivatives to manage volatility and enhance yield.

Hybrid SIFs: Hybrid Long-Short Funds combine equity, debt, and derivative instruments to deliver steady risk-adjusted returns.

Tactical allocation

SIFs aim to deliver performance across market cycles, not just in bullish phases. Their tactical design allows them to capitalise on market volatility and profit from both rising and falling prices through long and short exposures. By using derivatives as hedging instruments, these funds can manage downside risks while seeking incremental alpha.

For diversified investors, SIFs serve as a complementary allocation, adding differentiated strategies such as volatility management, tactical asset allocation, and long-short exposure—areas not typically available in conventional mutual funds.

Key considerations for investors

While the appeal of flexible strategies and potential for higher returns is clear, investors should be mindful of liquidity and redemption conditions. Some SIFs may include short lock-in periods or restricted redemption windows, reflecting the complexity of their investment structures.

Equally important is understanding the target return and investment objective of each SIF before committing capital. As the segment evolves, SIFs are expected to play a growing role in sophisticated portfolios—offering a balance of innovation, tactical flexibility, and steady performance across changing market conditions.