Summary of this article
Hybrid strategies account for nearly 72 per cent of SIF assets
Equity long-short funds are yet to prove consistent alpha generation
Early SIF demand is driven by curiosity and FOMO, says Magotra
Barely a year after their launch, Specialised Investment Funds (SIFs) have become one of the fastest-growing segments in India's asset management industry. The fledgling investment category’s assets under management (AUM) have grown nearly ninefold to Rs 17,858 crore since the first strategies were launched in October 2025. SIFs debuted with four schemes, including one equity long-short fund and three hybrid long-short funds. Together, they attracted net inflows of Rs 2,004.56 crore and ended the month with Rs 2,010.44 crore AUM.
Of the total AUM, hybrid strategies have attracted nearly 72 per cent of the assets, while the rest has gone to equity-oriented strategies. Debt-oriented strategies have so far attracted none, as no asset management company (AMC) has launched a dedicated debt-oriented SIF yet.
This trend suggests investors currently prefer hybrid strategies over pure equity offerings within the SIF framework.
What Are SIFs
Introduced by the Securities and Exchange Board of India (Sebi), SIFs are designed to bridge the gap between traditional mutual funds and sophisticated investment products such as Portfolio Management Services (PMS) and Alternative Investment Funds (AIFs). The regulatory amendments were notified in December 2024, followed by a detailed circular in February 2025, while the framework came into effect on April 1, 2025.
SIFs require a minimum investment of Rs 10 lakh per investor across all strategies offered by the same AMC. This places them between traditional mutual funds, where investors can start with as little as Rs 100, and PMS, which requires a minimum investment of Rs 25 lakh. Sebi recently reduced the PMS investment threshold from Rs 50 lakh to Rs 25 lakh.
The framework allows fund houses to launch equity-oriented, debt-oriented and hybrid strategies. Equity-oriented SIFs include products such as Equity Long-Short Funds, Sector Rotation Funds and Equity ex-Top 100 strategies. Debt-oriented strategies include debt long-short and sector-specific debt portfolios, while hybrid strategies can combine equities, debt, commodities, real estate investment trusts (REITs) and long-short positions under a single investment strategy.
Hybrid Long-Short vs Equity Long-Short SIFs
As the SIF market evolves, investors are increasingly asking which strategy offers better value: hybrid long-short or equity long-short funds.
To understand the differences, Outlook Money spoke with Vinayak Magotra, founding member and investment product head at Centricity WealthTech.
Magotra argues that hybrid long-short strategies are better placed for Indian investors today.
"We believe hybrid SIFs are better positioned today because of the underlying nature of the investment and because of the target return," Magotra told Outlook Money. "They are not there to create alpha. Most of the hybrid SIFs are there to create a certain bit of value which was missing from a debt mutual fund, or from a 7 to 10 per cent kind of a return bracket."
That distinction, he believes, is critical.
Hybrid long-short strategies are built around diversification and steadier risk-adjusted returns rather than trying to outperform equity markets. They can allocate across multiple asset classes and use long-short positioning to manage risk, making them fundamentally different from equity long-short funds whose success depends on generating excess returns through stock selection on both the long and short sides.
According to Magotra, equity long-short SIFs still have to prove that they can consistently outperform traditional long-only equity products.
"I still feel that it's going to take a while for equity long-short SIFs to create alpha over long-only equity mutual funds, PMS or AIFs," he said.
His reasoning is rooted in the nature of Indian stock markets.
An equity long-short portfolio earns returns from two separate positions. Gains can come from stocks held on the long side and from stocks sold short if they decline. But that structure can become a disadvantage during strong bull markets.
"In a bull run, since you are not 100 per cent long-only, a certain bit of your short position can also be a drag on the return rather than create an alpha," Magotra explained.
He pointed out that Indian markets often witness rallies even in fundamentally weak stocks during broad-based market upswings. That makes short positions difficult to monetise consistently, reducing the chances of outperforming conventional equity funds.
"So, as of now, I think it's too early to comment, but I feel the long-only equity strategies will create alpha. Equity long-short SIFs are yet to show the merit and show the performance."
Who Is Buying Equity Long-Short SIFs
Although Sebi created separate categories for equity, debt and hybrid strategies with clearly defined asset allocation norms, Magotra believes investor expectations around equity long-short funds may currently be unrealistic.
"Most of the investors today are coming up with a mindset that equity long-short SIFs as a category can create substantial alpha over long-only strategies, which I feel is not the right approach," he said.
"As an investment house, we first want to see their track record. We first want to see how, in the next six months, one year or 18 months, equity long-short SIFs behave versus long-only equity strategies. We are not looking at equity long-short SIFs as a category to create alpha, but we are looking at whether there can be better risk-adjusted, consistent returns that we can target."
Interestingly, Magotra believes the earliest adopters are not necessarily India's wealthiest investors.
"I'm not saying ultra-HNIs have not put in money, but I feel they are still mature enough to understand that this is a new category," he said.
"What I feel personally is that a lot of investors sitting in tier-2 and tier-3 cities who have created a lot of wealth in mutual funds want to try this. They are very keen on investing in new fund offers (NFOs), expecting that because they are coming early, they will make the maximum out of returns."
He attributes part of the demand to the excitement surrounding a new investment product, which he describes as the fear of missing out (FOMO).
"It's the excitement of a new product. It's the FOMO factor also. They are looking at it as though it is a missing puzzle, but it is not a missing puzzle. The opportunity will lie in the future as well."
Global Exposure Could Eventually Expand The Opportunity Set
Another area that could reshape the category is overseas investing. India's mutual fund industry has largely exhausted the regulatory limits for overseas feeder funds, resulting in several schemes temporarily halting fresh subscriptions. The government's focus has also shifted towards promoting investment through GIFT City structures.
Magotra believes SIFs could become significantly more diversified if regulations eventually permit investments into GIFT City funds.
"In a hybrid category, you can definitely take exposure to the global side," he said.
"You have domestic equity, debt, long-short strategies and then global equity as well. Your diversification will get far better, your risk-adjusted returns can also get better, and your currency depreciation can also get entered into the SIF category."
Will Equity Long-Short Become More Relevant Later
Magotra does not dismiss the long-term potential of equity long-short investing. Instead, he believes India may simply not have reached the market structure where such strategies consistently outperform.
Developed markets and slower-growing equity markets often present more opportunities on both the long and short sides. India, by contrast, continues to reward long-only investing during prolonged bull markets.
"I feel India is still a little away from that," he said. "Maybe when India reaches a level like most of the other developed economies, definitely all these products will have more evidence to create value for clients."
For now, the numbers appear to support that cautious stance. Hybrid investment strategies account for nearly three-fourths of the SIF industry's assets, with Rs 12,822 crore under management compared with Rs 5,036 crore in equity-oriented strategies. They also continue to dominate fresh inflows.
As India's newest investment category matures, investors will eventually have enough performance history to judge whether equity long-short funds can consistently justify their promise. Until then, hybrid long-short strategies appear to offer a clearer investment proposition for those seeking better risk-adjusted returns rather than an unproven source of equity alpha.
