How much should investors read into specialised investment fund's early returns?

The net assets under management (AUM) of this category, that is the total market value of all investments a fund manages including inflows, outflows, and changes in asset prices on a given date, have risen from ₹2,010.44 crore at the end of October 2025 (when Amfi released SIF numbers after first launch in September) to ₹9,710.87 crore at the end of February.

These will also give sophisticated investors a variety of options in the category, which was dominated by hybrid long-short strategies that use equities, debt, and derivatives to balance risk and returns during the initial phase.

Unlike a mutual fund that takes only long positions—buying and holding stocks to benefit when prices rise—SIFs can employ both long and short strategies. In other words, SIFs are not dependent only on upward market movement and can also generate returns in a bearish market. By using equity derivatives, they can profit even when prices fall. This flexibility allows fund managers to take positions based on whether they expect prices to rise or decline, and earn profits if their market view is correct.

Mint spoke to various industry players to understand who these products are built for and whether they should consider their performance during the limited time they have been operational.

Early performance as a metric?

The early picture shows that these funds have performed slightly better than mutual funds when Nifty 500 fell around 14% from 1 January-31 March as the West Asia conflict escalated at the end of February on top of the constant selling by foreign investors amid high valuations.

According to Value Research data, hybrid long-short funds, where most of the current AUM is concentrated, delivered an average negative three-month return of 3.1% as of 31 March.

During the same period (1 January- 31 March), their benchmark, the Nifty 50 Hybrid Composite Debt 50:50 index fell 7.8%. For comparison, traditional mutual funds that invest in both equities and debt to balance risk and return, like balanced advantage schemes, had an average negative return of 8.1%. Equity savings saw an average drawdown of 3.5%, while arbitrage schemes delivered an average return of 1.5% at the end of March.

In equity-oriented SIFs, only three schemes launched before 1 January delivered a negative three-month return of 10.1%, compared to the Nifty 500 total return index's 13.9% negative return from 1 January to 31 March 2026.

During this period, flexicap long-only mutual funds posted an average negative return of 13.1%.

But experts advise waiting for at least a cycle to gauge their performance. Vishal Dhawan, a certified financial planner and co-founder of Plan Ahead Wealth Advisors, said the launch of these products has coincided with a sharp correction in equity markets, and they have come with downsides, but they are likely to underperform in a one-way bull market.

Feroze Azeez, joint CEO, Anand Rathi Wealth Ltd, also noted that there is very limited data to judge performance, most SIFs have been in existence for less than a year, and early NAVs are broadly around the launch price of ₹10, signalling that it is too soon to look at their performance. "Since SIFs use long-short and derivatives strategies, performance needs to be seen across at least one full market cycle," he said.

By then, there will also be more schemes and better comparability, he added. The new category has given AMCs a window for innovation, as the current mutual fund categorisation norms allow them to launch only one scheme per category.

With the introduction of the SIF framework, they now have seven additional strategies to launch, each with a minimum ticket size of ₹10 lakh, allowing investments from sophisticated investors.

Structurally different from MF

This product was launched to bridge the gap between mutual funds and portfolio management services (PMS) in terms of portfolio flexibility. SIFs can invest in both long and short strategies.

Going long in investing is the purchase of an asset with the expectation that its price will rise over time, while shorting is designed to profit from a decline in an asset's price by using different strategies through futures and options segments.

From a structural perspective, Azeez said that investors should be aware that while Sebi allows up to 25% short exposure, there is no minimum requirement, so a long-short fund can still behave largely like a long-only fund.

He added that these may also come with restricted redemption windows, lock-ins, or interval structures, resulting in lower liquidity compared to mutual funds.

Sandeep Tandon, founder & CIO of Quant Mutual Fund, said they have utilised only between 9-12% of the 25% short limit allowed under the framework. He added that the category is designed with a longer-term perspective and investors should evaluate it over a three-to-five-year horizon.

Bhavesh Jain, co-head of factor investing at Edelweiss Mutual Fund explained that performance in the hybrid category has varied because each fund follows a different strategy. He said the Altiva Hybrid long-short fund has shown a minor decline in performance during January-March, as its positioning as an arbitrage-plus fund and a disciplined approach to avoiding equity chasing have given it the flexibility to cut down equity exposure.

Jain further clarified that the fund's derivatives exposure has been 14-15%, and that special situations such as IPOs and demergers have also contributed to alpha generation.

Unlike traditional open-ended mutual funds, where you can invest or redeem on any business day at the applicable net asset value (NAV), the hybrid strategies under the SIF framework operate under an interval structure, in which subscriptions are allowed daily, but redemptions are typically restricted to two days per week.

This structure enables fund managers to manage derivatives positions, arbitrage books, and fixed-income allocation without the pressure of daily redemption outflows. Some funds may also have a notice period of up to 15 working days. SIF disclosures are less transparent, making it harder to track, so the framework is evolving, but not fully mature yet, Azeez said.

Who should consider investing?

SIFs are better positioned than traditional long-only mutual funds, as their taxation is similar to that of a mutual fund and their fund managers have been given greater flexibility, believes Sandeep Seth, founder & CEO of SIF360. He added that it is also for that class of investors who were not ready to count on a single fund manager for minimum investment of ₹50 lakh and ₹1 crore through other vehicles.

“We are not recommending trying SIFs to beginners, those with less time horizon, and have total investment of less than ₹30-40 lakh," he said.

Dhawan also believes that this product is for those who are comfortable with buying into strategies which don’t have a long track record. Investors can allocate a small portion of their capital, mindful that what they are buying into is mostly through a back-tested model and the real data is limited, he said. It is also for investors who are looking to diversify from long-only products, he added.

According to him, for a new category, the allocation as a percentage of the portfolio should not go beyond 10% at the most. He added that until the track record of these funds exists, investors should look at the expense ratio and the track record of the fund management team in short strategies, because the skill set available here is relatively limited compared to long-only products.

He said one advice is that investors should typically run an overall concentrated portfolio, but because SIFs are new products, they should consider being a little more

New launches

As of early April, three new fund launches in this space are expected to launch this month, including Franklin Templeton’s Sapphire and The Wealth Company’s WSIF equity long-short funds and Quant qSIF’s active asset allocator long-short fund.

“The way we are focussing on this fund is more of a flexicap kind of strategy, in a bullish/one-way up market we will most likely be a long only product, in those phases we don’t want to kill the beta," Arihant Jain, portfolio manager of Sapphire Equity Long Short SIF said. "When the market is more sideways, neutral, or there is high volatility, we can see good fundamental companies rise more, and the bad ones may fall more.”

"Over the last two years, even though the market is flat, a lot of stocks are up by 40% and a lot of them down by 40%, in this kind of market, we can leverage a long-short strategy to try to generate alpha, but more than that to protect the drawdown," he added.

In terms of returns, he said that back testing shows that typically long only portfolio gives alpha of 3-4% after fees, and a long-short will give you 1-1.5% extra, because in a bearish market, it gives the ability to protect the drawdown better, if the fund falls less, recovery will be very quick.

While hybrid strategies have seen early traction, equity long-short strategies offer a more direct participation in equity markets with the added ability to actively manage risk through derivatives, said Chinmay Sathe, CIO - SIF, The Wealth Company Mutual Fund.

He added that these enhance portfolio construction by enabling dynamic risk management through derivatives, reducing reliance on market direction, and allowing participation in both rising and falling markets.

Ultimately, SIFs are more flexible than mutual funds and more accessible than AIFs, but the category is still in its infancy. Their early outperformance during a downturn is encouraging, not conclusive. Patience, modest allocation, and close attention to fund manager quality will matter far more than chasing the early winners.