SIF rollout narrows to equity and hybrid plays, complex strategies stay off the table

Since the product’s launch in April last year, every SIF that has come to market has fallen into just three of the seven strategies permitted by the regulator—equity long-short, equity ex-top 100 long-short and hybrid long-short. No fund house has launched either of the two debt strategies or a sector rotation equity fund, or an active asset allocator fund under the hybrid category.

Among the launched products are SBI Mutual Fund’s Magnum Hybrid Long Short, Tata Mutual Fund’s Titanium Hybrid Long Short SIF. ITI Mutual Fund has entered the space with Diviniti Equity Long Short fund. Across these launches, fund houses have largely steered clear of strategies dependent on heavy debt exposure or concentrated sectoral bets. Ten SIFs have been launched in the country with a pipeline of nine more products.

The only exceptions so far are from Quant Mutual Fund, which has announced plans for a sector rotation long-short fund and an active asset allocation long-short fund, but neither has been launched yet.

Equity long-short funds invest mainly in equities, with limited short positions. Hybrid long-short funds balance equity and debt while allowing some short exposure. Equity ex–top 100 long-short funds focus on mid- and small-cap stocks, avoiding large caps, and use derivatives to take controlled short positions for risk management.

SIFs have a minimum investment ticket size of ₹10 lakh, positioning the instrument between mutual funds and portfolio management services, which have a ₹50 lakh threshold. As of December 2025, SIF industry assets under management (AUM) stood at ₹4,892.32 crore, according to the Association of Mutual Funds in India (Amfi).

Strong on equity bets

Industry executives said the early clustering around equity and hybrid long-short products reflects both investor demand and practical considerations around risk, taxation and market infrastructure.

“Given that these are new and relatively complex categories, investors may initially prefer to observe performance and risk characteristics before committing capital at scale,” said Chinmay Sathe, business head and chief investment officer (CEO)–SIF, The Wealth Company Mutual Fund. “We believe that within the SIF framework, equity-oriented strategies, especially Equity Long-Short and Equity ex-Top 100 Long-Short Funds, offer the strongest potential for superior risk-adjusted returns.”

Though equity-related strategies may be a darling for fund managers right now, one of them has failed to prove its case. The sector rotation long-short fund is perceived as unachievable in the industry due to structural issues with the strategy.

Between the risk of picking the wrong sector at the wrong time and the high cost of constant trading, these funds are difficult to manage profitably, said Laukik Bagwe, chief investment officer-SIF and head–fixed income at ITI Mutual Fund. “Limiting exposure to four sectors curtails diversification, magnifying losses from underperforming picks.”

Sector rotation long-short funds invest at least 80% in equities across up to four sectors, while taking limited short positions at the sector level using derivatives. Active asset allocator long-short funds dynamically shift across equity, debt, real estate investment trusts (Reits), Infrastructure Investment Trusts (InvITs) and commodities, with short exposure capped at 25% through derivatives. To be sure, a sector rotation fund also falls under the equity strategy classification as per Sebi.

He added that investors also bear meaningful risks. “Investors encounter risks from sector concentration underperforming in broad market rallies, elevated volatility in derivatives, and misjudged sector bets amid rapidly shifting market and macroeconomic dynamics.”

Debt challenges

Sector rotation long-short funds must take a single directional view on each sector, meaning they cannot be long on some stocks and short on others within the same sector, according to Sebi. This reduces diversification and restricts a fund manager’s ability to adjust exposures flexibly.

On the other hand, debt-oriented SIFs face additional hurdles in taxation and return expectations. Debt strategies are seen as offering less compelling post-tax returns for the kind of high-net-worth investors (HNIs) the product targets, reducing their appeal despite the regulatory green light.

“Some of the challenges seen in debt mutual funds, including taxation and liquidity considerations, could also be relevant for debt-oriented SIFs. It is yet to be seen how those strategies will scale,” said Suraj Nanda, fund manager-SIF, Tata Mutual Fund.

“Debt SIFs will require time to mature, as the necessary hedging tools for this segment are still developing and may take years to evolve,” ITI’s Bagwe said. He also added that there are challenges in distribution and investor education, noting that fund managers face challenges in convincing distributors and investors of SIFs’ value and importance.

On the other hand, hybrid SIFs, including a hybrid long-short fund and an active asset allocator long-short fund, are viewed as having significant potential among investors. Active asset allocator long-short funds dynamically shift across equity, debt, real estate investment trusts, infrastructure investment trusts and commodities, with short exposure capped at 25% through derivatives.

“Investors are looking for a ‘debt plus’ kind of return with tax efficiency. Hybrid long short offers them that,” said Gaurav Mehta, head-SIF (equity) at SBI Mutual Fund. “A hybrid long-short fund covers the gap between an arbitrage fund and a hybrid mutual fund. It gives more returns than arbitrage and is more tax efficient than a hybrid MF.”

Arbitrage mutual funds typically generate low-risk returns by exploiting price differences between cash and derivatives markets and are taxed like equity funds, making them attractive to conservative investors. Hybrid mutual funds, on the other hand, combine equity and debt exposure, with taxation depending on the equity allocation.