Specialised Investment Funds (SIFs) are a new concept. In simple terms, what kind of investor problem do they solve that mutual funds and Portfolio Management Services (PMS) don’t?
SIFs aim to solve the “missing middle ground” problem for investors whose needs have evolved beyond what traditional mutual funds offer, but who don’t want or cannot access PMS or alternative investment fund (AIF) products.
SIFs offer more flexibility from the strategy perspective (including measured use of derivatives and limited short exposure) than traditional mutual funds. PMS require higher minimum investments and can be highly customised. On the other hand, SIFs are designed as more standardised, strategy-led products with a lower entry point compared to PMS and AIFs, making them accessible to more investors.
Traditional mutual funds, typically, use derivatives for hedging and have limited scope for strategy-led derivative structures. On the other hand, SIFs are built to run defined strategies (for instance, hedged, long-short, or other outcome-oriented approaches) with more flexibility, thus allowing investors to aim for smoother returns and better drawdown control and not just market-direction bets.
SIFs are being positioned as strategy-led products rather than category-led products. How should investors choose a strategy in SIFs versus a traditional mutual fund?
With mutual funds, investors often start with a predefined category such as large-cap, flexi-cap or short-duration funds, and then pick a fund. But SIFs require a different approach. Investors should start by understanding the strategy’s intended outcome, investment journey and its risk controls.
Investors need to define outcome, such as whether there is lower volatility, downside protection, income-like accrual, equity participation through hedges or arbitrage opportunities. They should also understand the key return drivers, such as carry or accrual income, arbitrage spreads and credit spreads.
Equally important is evaluating the strategy’s risk framework, including net exposure limits, derivative usage, concentration risks and liquidity profile, as some strategies may offer interval-based rather than daily dealing.
In SIFs, it won’t be correct to compare schemes within the same category, too, as they may be very different from each other.
SIFs are designed as more standardised, strategy-led products with a lower entry point compared to PMS and AIFs, thus making accessible to more investors
SIFs offer multiple strategies for investors. Which strategies work better under different market conditions?
Different SIF strategies tend to shine in different market regimes because they rely on different performance engines.
Market-neutral, arbitrage and debt-oriented strategies are generally considered more resilient during volatile phases because they depend less on market direction. In bear markets, hedged and long-short strategies may help reduce drawdowns compared to pure long-only equity exposure. On the other hand, during strong bull markets, traditional long-only equity strategies often outperform, as hedges can limit upside participation but reduce risk at the same time.
Credit environment trends also play a crucial role in determining performance. In a falling rate environment, accrual, credit-spread and duration strategies tend to benefit from bond price appreciation and spread compression. Conversely, in a rising rate environment, shorter-duration and lower-duration strategies are usually more defensive than long-duration exposures.
However, real-world results depend on implementation quality, costs, and risk controls and not just the label.
1 May 2026
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The Securities and Exchange Board of India (Sebi) allows SIFs to use derivatives within defined limits. How does this flexibility help investors to navigate volatile market conditions?
Derivatives flexibility can help limit volatility by reducing portfolio sensitivity to sudden market moves and controlled short exposure that may potentially offset losses during drawdowns. It also allows fund managers to rebalance portfolios faster through cash-only repositioning. In addition, income-generating derivative strategies such as short straddles or collar options can create additional return opportunities. More importantly, derivatives support a more consistent portfolio construction approach, allowing strategies to target a defined risk profile instead of being restricted to long-only market exposure. The key is that this flexibility is useful only when paired with clear limits, robust established risk management, and transparency.
In volatile markets like the current one, can strategy-driven investing (like hybrid long short) potentially deliver better returns than pure long-only investing? How should investors position themselves?
The strategy has potential to deliver better performance, especially on a risk-adjusted basis. Long-short hybrid strategies can aim for smoother outcomes by combining return sources (such as accrual or carry plus spreads plus arbitrage or hedged equity). They may reduce drawdowns, which can improve one’s ability to stay invested.
Investors may use strategy driven products as a diversifier or stabiliser alongside long-only equity, rather than a full replacement, unless their objective is explicitly lower volatility and controlled drawdowns.
India has largely been a long-only investment market. Do you think SIFs could introduce a more mature culture of risk-adjusted investing?
Yes, they can contribute as they encourage investors to think in terms of defined strategies rather than just categories, while also focusing on risk budgets, drawdown control and multiple return drivers beyond market direction. Whether this becomes mainstream will depend on investor education, suitability checks and how consistently these strategies deliver on their stated objectives, particularly during periods of market stress.
