Mid-Cap Muscle With A Hedge in Hand

A Specialised Investment Fund, or SIF, sits between a traditional mutual fund and a PMS or AIF in terms of flexibility and minimum investment. One category within this space is the Ex-Top 100 Long-Short Fund. The phrase “Ex-Top 100” refers to listed companies outside the top 100 large-cap stocks. In effect, this means the strategy focusses largely on mid-cap and small-cap stocks. The “long-short” part means the fund can take positive positions in stocks it likes and limited negative positions through derivatives in stocks it finds expensive or risky.

In such a structure, the long equity book remains the portfolio core. Under normal conditions, around 65-100 per cent of the portfolio may be invested in ex-top-100 stocks. At the same time, the short exposure through unhedged derivative positions is capped at 25 per cent. This is important because it shows that the fund is not built like an aggressive hedge fund. It is still largely an equity strategy, but with some room to manage risk and valuations better.

Why does this matter? Because mid-cap and small-cap stocks can be rewarding, but they can also be volatile. In strong bull phases, these segments often outperform sharply. For example, in one year, the Nifty 100 TRI delivered 71.2 per cent, while the Nifty Midcap 100 TRI and Nifty Smallcap 100 TRI delivered 103.9 per cent and 127.4 per cent respectively. But the downside can be equally harsh. In a weak year, the Nifty 100 TRI fell 24.9 per cent, while the mid-cap and small-cap indices declined 35.1 per cent and 45.3 per cent.

This is where the long-short feature can help. The idea is simple. Participate in the growth potential of mid- and small-caps, but try to reduce some downside or excess froth through derivatives, covered calls, arbitrage or hedging strategies. In a positive market, the fund may tilt strongly towards extop-100 stocks. In a negative market, it may raise hedges, add some exposure to top 100 stocks, or hold more debt and money market instruments for balance and margin needs.

Another reason this Ex-Top 100 Long-Short Fund category is attracting attention is the growing importance of the broader market. The share of small and mid-caps in listed market capitalisation has risen from 36 per cent in 2017 to 39 per cent in 2025, while the share of large-caps has edged down to 61 per cent. So, investors are looking beyond the largest companies for opportunities.

This category is designed for investors who want a more flexible approach to the mid and small-cap space. The use of hedging and derivatives gives the fund manager added tools to navigate different market phases, while the Rs 10 lakh minimum investment places it in a more specialised segment. It may appeal to investors who understand market cycles, are looking for broader-market opportunities, and want a strategy that can combine growth potential with active portfolio management.

In short, an Ex-Top 100 Long-Short Fund is best understood as a middle-path product. It offers access to the growth potential of companies beyond the top 100, while also giving the fund manager some tools to manage risk better than a plain long-only portfolio. That makes it interesting, but only for investors who understand both the opportunity and the complexity.

Disclaimer: This article is written by Darshan Patel & Palak Shah, Director & Co-Founder, Step up Wealth Pvt Ltd.

The views expressed are their own. This is partner content and not an Outlook Money editorial feature. Outlook Money does not provide investment advice or endorse any products or services mentioned.

Mutual Fund investments are subject to market risks. Read all scheme-related documents carefully.

Disclaimer: The Views are Personal and not a part of the Outlook Money Editorial Feature