Hybrid long-short funds under the Specialised Investment Funds (SIFs) category are the latest buzzword in Indian investing circles. These funds promise flexibility to capture opportunities in both rising and falling markets, something traditional mutual funds cannot easily do. However, most investors are still confused: How much should I actually allocate to these funds? Should it be a small satellite portion of the portfolio or can it become a major allocation? Let’s do a deep dive.
Earlier we covered What is SIF and a complete guide for investors.
What Are Hybrid Long-Short SIFs?
There are 7 types of SIFs in India. However currently many AMCs are floating Hybrid Long-Short SIFs and others are on the way.
Hybrid long-short SIFs are funds that go long on stocks expected to rise and short on stocks expected to fall, with the flexibility to adjust net exposure depending on market conditions.
- Long book: Traditional equity positions.
- Short book: Using derivatives or other tools to profit from falling stocks.
- Hybrid approach: The fund manager can dial exposure up or down, creating a dynamic risk profile.
This makes them different from:
- Equity mutual funds – which are mostly long-only.
- Balanced Advantage Funds (BAFs) – which adjust equity-debt mix but rarely take explicit short positions.
Considering this, many SIFs were launched like Quant Hybrid Long Short Fund (due to non availability of SIF info in public domains, we could not cover in our reviews), Altiva Hybrid Long-Short Fund NFO, and SBI’s Magnum Hybrid Long-Short Fund NFO.
Why Are Investors Looking at Hybrid Long-Short SIFs in 2025?
- Market volatility: With high valuations and uncertain global conditions, investors want downside protection.
- Flexibility: These funds can reduce net equity exposure when markets look overheated.
- Diversification: Adding a strategy not tied 100% to market direction helps reduce overall portfolio risk.
Globally, long-short strategies are common in hedge funds. Indian SIFs are just starting to bring this structure to domestic investors.
Key Benefits of Hybrid Long-Short SIFs
- Potential to generate returns in both bull and bear phases.
- Lower drawdowns compared to pure equity funds.
- Opportunity to benefit from alpha through stock selection (long and short).
- Diversification — returns may be less correlated with equity indices.
Investors may also like – 10 Hybrid Mutual Funds That Outperformed with 290% to 420% Absolute Returns in 10 Years.
Key Risks Investors Must Understand
- Complexity: These strategies are not easy to understand for all investors.
- Manager skill: Success depends heavily on how well the manager builds long and short books.
- Costs: Performance fees and higher expense ratios compared to mutual funds.
- Liquidity: Some SIFs may have lock-in or redemption restrictions.
How Much Should You Allocate? (The Core Question)
There is no “one size fits all.” Allocation depends on your risk appetite, financial goals, and investment horizon.
For Conservative Investors
- Allocation: 5% to 10% of portfolio.
- Role: Use hybrid long-short SIFs as a satellite allocation, not core.
- Why: Focus is still on capital preservation; SIF adds diversification and limited alpha.
For Moderate Investors
- Allocation: 10% to 20% of portfolio.
- Role: Balance between equity and hybrid strategies.
- Why: Can afford some risk to capture better risk-adjusted returns.
For Aggressive Investors
- Allocation: 20% to 30% of portfolio.
- Role: A more aggressive play, using SIFs as part of the growth engine.
- Why: Willing to accept higher volatility and complexity for potential alpha.
Explore 11 Mutual Funds Outperformed in Last 5 Years with 376% to 415% Absolute Returns.
Sample Portfolios With Hybrid Long-Short SIFs
₹10 Lakh Conservative Portfolio Example
- 60% Equity Mutual Funds
- 30% Debt Funds / FDs
- 10% Hybrid Long-Short SIFs
₹25 Lakh Moderate Portfolio Example
- 50% Equity Mutual Funds
- 30% Debt Funds
- 20% Hybrid Long-Short SIFs
₹50 Lakh Aggressive Portfolio Example
- 55% Equity Mutual Funds
- 15% Debt Funds
- 30% Hybrid Long-Short SIFs
Check 12 Mutual Funds Outperformed in Last 2 Years with 75% to 118% Returns.
Who Should Avoid Hybrid Long-Short SIFs?
- Investors looking for guaranteed returns.
- Those uncomfortable with market-linked volatility.
- Investors with less than 3 years horizon (short-term money doesn’t belong here).
Conclusion
Hybrid Long-Short SIFs are an exciting addition to India’s investment landscape. They bring strategies that were once the domain of global hedge funds closer to retail and HNI investors.
But remember: these funds are not magic bullets. They should complement your existing portfolio, not replace it. A smart allocation — anywhere between 5% and 30% depending on your risk profile — can help you diversify, reduce drawdowns, and capture alpha in a volatile 2025 market.
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