If you follow new-age investment products in India, Specialised Investment Funds (SIFs) are impossible to ignore in 2025. They sit inside the mutual fund framework but are expressly designed to run AIF‑like strategies — long‑short equity, sectoral plays, hybrid arbitrage, special situations and more — with a mutual‑fund governance shell. That mix makes them attractive for investors who want advanced strategies without the full operational & tax complexity of Category‑III AIFs.
Earlier we covered a Detailed Guide on Specialised Investment Funds SIF and this article covers specifically on Different Types of SIFs.
Quick primer: what exactly is a SIF?
A Specialised Investment Fund (SIF) is a mutual fund scheme with permission to run a single, well‑defined advanced investment strategy. Key practical points:
- Structure: Launched inside an AMC / mutual fund trust (so it follows MF governance and some operational standards).
- Investor profile: Typically aimed at HNIs, family offices and sophisticated retail investors. Minimum ticket commonly ₹10 lakh (check the scheme document).
- Why it exists: To give investors access to tactical & hedge‑oriented strategies (long‑short, special situations, arbitrage + derivatives) with mutual‑fund style disclosure and ease of setup.
The 7 differentiated SIF scheme categories
- Equity Long‑Short Fund
- Equity Ex‑Top 100 Long‑Short Fund
- Sector Rotation Long‑Short Fund
- Debt Long‑Short Fund
- Sectoral Long‑Short Fund
- Active Asset Allocator Long‑Short Fund
- Hybrid Long‑Short Fund
Below is a deep dive into each — drilldown mechanics, instruments, typical allocations (illustrative), investor fit, benefits and granular risk points.
1) Equity Long‑Short Fund — deep dive
What it is
- A hedge‑style equity strategy that combines long positions in companies expected to outperform with short positions in those expected to underperform. The objective is to generate alpha while limiting pure directional market risk.
Where it invests / instruments used
- Cash equities (large/mid/small caps), futures & options, index & stock options, ETFs and intra‑day arbitrage instruments.
Typical portfolio mechanics (illustrative)
- Long exposure: core long book (40–80% of net assets) concentrated in high‑conviction names.
- Short exposure: targeted shorts to reduce net exposure or to express negative views (derivative/short position up to a manager‑defined limit).
- Net exposure targeting: funds typically target a defined net market exposure band (e.g., net 10%–50%) — check scheme SID for exact limits.
Who should invest
- Investors who understand equity derivatives and are comfortable with manager discretion, volatility and periodic drawdowns.
Why invest (benefits)
- Potential for alpha generation in both up and down markets.
- Lower correlation with pure long‑only equity funds.
Risk factors (detailed bullets)
- Market risk: losses if long picks fall and shorts don’t protect fully.
- Short squeeze / liquidity risk: difficulty covering large short positions during stress.
- Execution risk: derivatives cost, slippage and borrowing costs erode returns.
- Leverage & margin risk: derivatives may require margins that amplify drawdowns.
- Concentration risk: high conviction long or short bets can amplify single‑name risk.
Operational considerations
- Check manager’s derivatives experience, average holding period, and trade execution capability.
- Understand the policy on stock lending, shorting mechanics and rebalancing frequency.
2) Equity Ex‑Top 100 Long‑Short Fund — deep dive
What it is
- A long‑short strategy that deliberately excludes the largest 100 listed stocks (by market cap) to focus on mid & small cap opportunity set.
Where it invests / instruments used
- Mid & small cap cash equities, futures & options where available; may include pair trades (long one small cap, short another) and relative value plays.
Why managers run it
- Mid & small caps are often under‑researched — scope for informational advantage and higher alpha if research is strong.
Who should invest
- Investors willing to accept higher volatility and lower liquidity in exchange for potential outperformance.
Benefits
- Access to a broader opportunity set, potential for higher returns vs large‑cap focused strategies.
Risk factors (granular)
- Liquidity risk: smaller names trade in lower volumes — wide bid‑ask spreads and market impact.
- Information & governance risk: smaller firms may have weaker disclosure and higher corporate governance risk.
- Higher volatility: sharp moves can occur on limited news.
- Concentration risk: sector or theme bets in small caps can magnify losses.
Manager checklist
- Research team depth for small caps, position limits, stop‑loss rules, and ensuring large enough average position sizes relative to market liquidity.
Investors can check Best Midcap Mutual Funds to invest in 2025 based on rolling returns
3) Sector Rotation Long‑Short Fund — deep dive
What it is
- A tactical strategy that shifts exposure between sectors based on macro, cyclical and valuation indicators; may take long & short positions across sectors.
How it works
- Top‑down macro call + bottom‑up stock selection. Uses sector ETFs, futures and options to rotate quickly.
Typical playbook
- Leading indicators: PMI, credit flows, interest rate trajectory.
- Valuation overlays: relative P/E, PB vs historical bands.
- Momentum triggers: sector relative strength for entry/exit.
Who should invest
- Investors who want tactical exposure to macro cycles and can stomach active calls that may be wrong at times.
Why invest
- Can outperform in regimes where leadership rotates strongly (commodity booms, rate cycles, fiscal stimulus, etc.).
Risk factors
- Macro call risk: wrong timing leads to drawdowns.
- Overtrading risk: frequent switches add costs and tax friction.
- Sector concentration: can underperform in broad‑market rallies where many sectors move together.
Operational notes
- Look for systematic decision frameworks (what triggers a rotation), how hedges are implemented and limits on sector allocation.
4) Debt Long‑Short Fund — deep dive
What it is
- A fixed income strategy that exploits relative value across the yield curve, credit spreads and interest rate views using long positions in attractive debt and short positions (or hedges) in expensive/overvalued papers.
Where it invests / instruments
- Government securities, corporate bonds, money market, repo, credit default swaps (if available), interest rate futures and other hedging derivatives.
How returns are generated
- Accrual income from high quality debt + price appreciation from active duration or spread compression trades; hedges are used to protect against adverse rate moves.
Who should invest
- Investors seeking income with controlled volatility, or those wanting a fixed‑income alpha sleeve within a broader portfolio.
Risk factors (detailed)
- Credit risk: default / downgrade risk in corporate bonds.
- Interest rate risk: sharp moves in yields can hit mark‑to‑market valuation.
- Liquidity risk: in stressed situations, selling bonds may be costly.
- Model risk: wrong duration calls can cause losses during rate shocks.
Due diligence checklist
- Examine credit research process in detail.
- Look at limits on single‑issuer exposure.
- Check active duration band and stress testing policy.
- Review liquidity buffers to see how redemptions would be met.
5) Sectoral Long‑Short Fund — deep dive
What it is
- A concentrated strategy focused on one sector (for example, financials, pharma, infra) but using both long and short positions to manage net exposure.
Why run a sectoral long‑short
- When a manager has deep, structural advantage or sector experts that can identify dispersion among names inside a sector.
Who should invest
- Investors with high conviction in a sector’s growth story, willing to accept concentrated risk, and who want hedging to limit outright downturns.
Risks
- Regulatory/regime risk: sectors are sensitive to policy changes.
- Concentration risk: heavy exposure to sector cycles.
- Single‑industry shocks: demand collapse or input cost spike can cause losses across the book.
Manager proof points to seek
- Track record in the sector, expert analyst coverage and stress‑test results across adverse scenarios.
Investors can also check 7 Thematic Mutual Funds that outperformed in the last 5 years.
6) Active Asset Allocator Long‑Short Fund — deep dive
What it is
- A multi‑asset strategy that actively allocates across equities, debt and other instruments and uses long‑short tools to manage risk and capture tactical alpha.
How it operates
- Uses a top‑down macro overlay + tactical shorting to protect capital during stress; may lean to bonds in risk‑off and equities in risk‑on environments.
Who should invest
- Investors who want a single product for dynamic allocation with downside protection built into the process.
Benefits
- Diversified return sources, smoother ride vs pure equity SIFs, potential for consistent risk‑adjusted returns.
Risks
- Allocation call risk: wrong macro calls can reduce upside.
- Complexity: multiple strategies increase execution and oversight complexity.
Performance drivers
- Manager’s macro process, ability to time rotations, and discipline around rebalancing and stop‑loss.
7) Hybrid Long‑Short Fund — deep dive
What it is
- A blended strategy that combines arbitrage (income), special situations, long‑short equity and fixed income into a single hybrid sleeve — effectively an ‘all‑weather’ product.
Common building blocks
- Core: arbitrage & liquid fixed income for stability.
- Enhancers: special situations (IPOs, buybacks, open offers), pair trades, covered calls and selective directional exposure.
Who should invest
- Investors seeking steadier returns than pure equity SIFs but with some upside participation through special situations.
Risk profile
- Lower short‑term volatility vs pure equity SIFs but exposure to event risk (IPO flop, buyback failure) and derivative execution risk.
Why managers like hybrids
- The mix smoothens returns across market cycles while enabling pockets of alpha.
Currently Edelweiss Altiva has launched Hybrid Long-Short Fund NFO.
Practical checklist: how to choose the right SIF for you
Investor questions to answer first
- What is your objective: growth, income, capital protection or tax‑efficient alpha?
- Time horizon: 1–3 years vs 5+ years?
- Liquidity needs: can you lock‑in capital or do you need frequent redemptions?
- Tax sensitivity: do you prefer strategies that aim for long‑term capital gains treatment?
Due diligence checklist (manager & fund level)
- Manager pedigree in chosen strategy and live track record (not just backtests).
- Team depth: research, derivatives, fixed income specialists.
- Position limits & risk controls (stop losses, single stock limits, sector limits).
- Liquidity & redemption terms (interval funds vs open‑ended choices).
- Fees & performance fees structure; check expense drag vs expected alpha.
- Custody, audit & compliance setup (independent custodian, trustee oversight).
Sample investor allocations (illustrative)
- Conservative: 60% Hybrid SIF / 40% Debt Long‑Short.
- Moderate: 40% Equity Long‑Short / 30% Hybrid / 30% Debt Long‑Short.
- Aggressive: 60% Equity Long‑Short (incl. Ex‑Top100) / 20% Sectoral / 20% Active Allocator.
How SIFs differ from AIFs, PMS & Mutual Funds (brief)
- SIF vs AIF Cat‑III: SIFs sit in MF structure and may be operationally cheaper and tax‑efficient compared to Cat‑III; but check manager fees and taxation specifics.
- SIF vs PMS: PMS is discretionary for individual investors; SIF is pooled with MF governance and easier operational access for small HNIs.
- SIF vs Mutual Fund: SIFs run more complex strategies and have higher minimum tickets.
FAQs (short answers)
- Can retail investors access SIFs? Yes, if they meet the minimum investment and suitability criteria set by the scheme.
- Are SIFs liquid? Liquidity varies — many SIFs are interval or have limited redemption windows. Read the SID carefully.
- Are SIFs risky? They are more complex than conventional MFs. The risk depends on strategy; long‑short equity SIFs are inherently more volatile than debt long‑short SIFs.
Final takeaway — practical recommendation
SIFs open doors to advanced strategies previously confined to hedge funds and Cat‑III AIFs. The correct SIF depends on your risk appetite and time horizon:
- Choose Debt Long‑Short or Hybrid if you want lower volatility and income bias.
- Choose Equity Long‑Short or Equity Ex‑Top100 if you seek high alpha and can stomach volatility.
- Choose Sector Rotation or Sectoral if you have high conviction in macro or sectoral themes and trust the manager’s timing ability.
Always verify the manager’s live track record, understand liquidity & fees, and consult a tax advisor before allocating capital.
Founder at Myinvestmentideas.com
Suresh KP is a seasoned financial expert with over 23 years of experience. He is NISM Certified Investment Adviser and Research Analyst. For more about his expertise and certifications, visit About Suresh KP
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