Indian investors have become familiar with the broad logic of asset allocation. But knowing the role of each asset class is only the first step. The harder question is whether the allocation should remain fixed when markets, valuations, interest rates and inflation regimes keep changing.
This search for greater flexibility has also brought Specialized Investment Funds, or SIFs, into the market conversation. SIFs are positioned as an intermediate structure between mutual funds and PMS/AIFs, combining the regulatory framework of mutual funds with greater portfolio flexibility. They have a minimum investment threshold of Rs 10 lakh, compared with Rs 50 lakh and above for PMS and Rs 1 crore and above for AIFs.
One strategy that fits into this wider framework is the active asset allocator long-short approach. It is designed for investors who understand that different assets perform differently across cycles, and that a portfolio may need the flexibility to move between them. The idea is to actively shift exposures across these buckets as valuations, macro conditions and risk-reward change.
The need for such flexibility becomes clearer when one looks at asset-class behaviour. Asset class leadership changed sharply between 2018 and 2025. In 2021, equity delivered 29 per cent while gold was down 4 per cent. In 2023, equity again led with 25 per cent. But in 2025, gold delivered 75 per cent, while equity was at 10 per cent and debt at 6 per cent. Hybrid assets, meanwhile, delivered more moderate outcomes across many of these years.
The same point is visible across market phases. During the Covid-19 crisis from January 2020 to April 2020, equity fell 31.5 per cent, hybrid assets also fell, but by a lower 19.8 per cent. During the bull phase from September 2020 to November 2023, equity delivered 21.9 per cent, while hybrid assets delivered 16 per cent. The message is that combining assets can alter the return journey and reduce dependence on one market outcome
Within the SIF framework, active asset allocator long-short strategies try to go a step further. They may allocate across equity, debt, exchange-traded commodity derivatives and InvITs, while also using permitted derivative strategies.
The “active” part is important. Such strategies may use valuation signals to decide whether equity exposure should be higher or lower. Factors such as rolling forward price-to-book ratios and corporate profits as a percentage of GDP can be used for equity allocation. For debt, the focus may be on duration and credit opportunities. For commodities, signals may differ for gold, silver, crude oil, copper and aluminium. A macro-overlay may assess whether the economy is in a growth, inflation, slowdown or stagflation-type regime.
For investors, the appeal is clear. This is asset allocation with a wider toolkit. But more flexibility also means more moving parts. Outcomes depend on the quality of the model, discipline of execution, use of derivatives, liquidity and the fund manager’s ability to read changing conditions. In such strategies, the capability of the AMC and fund management team matters as much as the category itself.
In conclusion, investors should view active asset allocator long-short strategies as sophisticated allocation vehicles that seek to manage market cycles more dynamically than traditional static portfolios. In modern markets, asset allocation is no longer just about dividing money between boxes. It is also about knowing when those boxes deserve more or less weight.
Authored by
Pathik Shah, Managing Partner, Pathway Finserv LLP