The Rise of Specialised Investment Funds: Opportunity Or Over-Segmentation?

There was a time when choosing a mutual fund mostly meant picking between equity, debt and hybrid schemes. That choice has become a lot wider now. Specialised investment funds (SIFs) are now offering investors strategies that allow fund managers more room to hedge, take short positions, and change their market exposure. Since the Securities and Exchange Board of India (Sebi) introduced the category in April 2025, nearly 30 schemes have hit the market, managing around Rs 23,000 crore in total.

But as investor interest increases, a bigger question is emerging: are SIFs filling a genuine gap in the market, or are they creating yet another layer of investment choices that investors may struggle to understand?

Says Rajani Tandale, head – mutual fund and partner at 1 Finance: “Most comparisons place SIFs alongside portfolio management services (PMSs), but I would argue that they sit closer to a ‘mini’ or lighter version of an alternative investment fund (AIF). Under PMS, derivatives are typically used only for hedging, but SIFs go a step further, permitting limited short exposure alongside hedging, which is closer to how AIFs use derivatives more aggressively.”

This gives SIF investors two distinct benefits: downside protection and the ability to profit from short-selling.

The SIF category has grown quickly in a short span of time. Today there are close to 30 schemes spread across four broad strategies:

• Hybrid — 11 funds

• Equity Long-Short — 10 funds

• Equity Ex-Top 100 (mid- and small-cap focused) — 5 funds

• Active Asset Allocator — 3 funds

The total assets under management (AUM) of SIFs stand at roughly Rs 23,000 crore, growing multi-fold since launch.

Here’s a closer look at the equity strategies:

• Equity Long-Short Funds maintain a minimum 80 per cent allocation to equities, aiming to generate returns in both rising and falling markets by buying promising stocks and shorting overvalued ones.

• Equity Ex-Top 100 Long-Short Funds mandate a minimum 65 per cent allocation to mid-cap and small-cap stocks.

• Sector Rotation Long-Short Funds concentrate capital in up to four sectors, with the manager dynamically rotating weights and shorting entire sectors expected to underperform.

There is one caveat to keep in mind. The short-selling and derivative use by SIFs, while being more flexible than that of mutual funds, is still more restricted than a true hedge-fund-style AIF. Whether that’s an advantage or a disadvantage depends on perspective – it’s a hybrid product that isn’t fully ‘true to label’ on either side.

Hybrid SIFs, meanwhile, are built for low volatility and low-correlation returns, with an emphasis on downside protection.

The bigger question is investor behaviour. Will investors understand that this is a fundamentally different product from a regular mutual fund?

Says Tandale: “We already see retail investors switch out of funds the moment they underperform, chasing whichever category is delivering high returns at the time. SIF strategies may look compelling on paper, but whether investors grasp the risk and stay invested through a full cycle remains to be seen.”

It’s also too early to judge SIFs on performance alone; fund manager expertise will matter here more than in most categories. The real test is whether the multi-fold AUM growth reflects genuine conviction in managers’ track records, or is it simply a case of fear of missing out (FOMO).

Tandale says hybrid SIFs could suit more conservative investors. “But given the complexity and novelty of the category, my advice is to take an SIF allocation only with guidance from a financial advisor,” she adds.