Since the market regulator’s nod in April, eight asset management companies have launched specialised investment funds or SIFs. These funds act as an effective satellite or tactical allocation—complementing core equity and debt funds.
Most SIFs are targeting arbitrage-plus returns, typically 100–200 basis points higher than traditional fixed-income or arbitrage category funds. As these are placed between arbitrage and hybrid category funds, investors can expect an annualised return of 6–8%. The flexibility to employ a wider range of investment techniques gives these funds the potential to generate returns across market cycles.
The minimum investment in SIF is Rs 10 lakh, lower than the Rs 50 lakh for portfolio management services. “For investors who value stability, liquidity and predictability, SIFs act as a tactical allocation—complementing core equity and debt funds,” says Nirav Karkera, head, Research, Fisdom.
Investment strategies
Unlike mutual funds that typically track broad market indices or specific sectors through conventional long-only approaches, SIFs have the flexibility to employ a wider range of investment techniques. These include long–short equity, multi-asset diversification, and the use of derivatives for leverage and risk management.
Aditya Agarwal, co-founder of Wealthy.in, a wealth management platform, says by implementing tactical strategies SIFs can generate returns across both rising and falling markets. “Their focus extends beyond absolute performance to enhancing the efficiency of returns, aiming to earn more per unit of risk taken,” he says.
Derivatives are used as hedging tools to control exposure, with unhedged positions capped at low levels. Quant MF’s SIF, which invests in small and midcap stocks, takes tactical long and unhedged short positions (up to 25%) to enhance alpha and control risk.
Allocation to SIFs
These funds complement the core by adding differentiated strategies such as volatility management, long-short exposure, or tactical asset allocation that are otherwise unavailable in conventional mutual fund formats. Sonam Srivastava, founder, Wright Research PMS, says an investor with 70–80% of assets in diversified equity and hybrid funds can allocate 10–20% to SIFs for diversification and smoother returns through market cycles.
What to watch out for
Liquidity is an important factor, as some SIFs may have lock-in periods or limited redemption options given their unique structure vis-à-vis mutual funds. “The definition of outcome and target return should be clearly understood,” says Jyoti Prakash Gadia, MD, Resurgent India, an investment bank.