The asset manager will launch the MSIF Equity Long-Short Fund, with its New Fund Offer (NFO) opening on September 30 and closing on October 14.
The strategy will reopen for continuous purchase and redemption from October 26.
The launch comes as the SIF category expands the range of strategies available within the mutual fund framework. SIFs are positioned between traditional mutual fund offerings and more sophisticated investment products, with higher investment thresholds and greater flexibility in portfolio construction.
What is different about the strategy?
Unlike a conventional long-only equity fund, the Mahindra Manulife strategy can take both long positions in stocks and selective short exposure through equity derivatives.
A long position seeks to benefit from a rise in the value of a stock. A short position, in contrast, seeks to benefit when the price of the underlying security falls, subject to the risks associated with derivatives and the fund’s strategy.
The fund house said short positions will be based on its research process rather than simply taking a broad negative view on the equity market. Its framework will assess factors such as business and governance issues, earnings, valuations, policy and ownership, as well as potential catalysts.
The strategy will use both top-down and bottom-up analysis. The former will consider factors such as interest rates, inflation, economic growth, liquidity, market flows and geopolitical developments, while stock selection will be based on fundamental research along with quantitative inputs.
Risk management will be important
The use of derivatives and short positions can increase the complexity and risks involved compared with a traditional long-only equity fund.
The fund house said its risk framework will include position limits, sector deviation limits, stock-level hedges, portfolio hedges and drawdown triggers.
SEBI’s SIF framework also lays down specific exposure limits for derivatives. For example, the regulatory framework provides limits around unhedged short exposure and derivative positions, with the objective of controlling the extent of leverage and risk in such strategies.
For investors, this means the strategy’s ability to take short positions does not imply that it can freely bet against stocks without regulatory or portfolio-level constraints.
₹10 lakh minimum investment
The strategy will have a minimum investment of ₹10 lakh, in multiples of ₹1 thereafter. For accredited investors, the minimum application amount will be ₹1 lakh.
The ₹10 lakh threshold is a key feature of the SIF framework and is generally applicable across an investor’s SIF investments with an AMC, subject to specified exemptions, including accredited investors.
The fund will be available under both Direct and Regular Plans, with Growth and Income Distribution cum Capital Withdrawal options.
It will be benchmarked against the Nifty 500 TRI and carries a Risk Band Level 5 classification.
How is this different from a regular equity mutual fund?
A conventional equity mutual fund primarily seeks to generate returns by buying and holding stocks. A long-short SIF has greater flexibility to use derivatives and take positions designed to benefit from both rising and falling prices.
That flexibility, however, does not automatically mean lower risk. Derivatives can amplify gains as well as losses, while short positions carry their own risks if the underlying security rises instead of falling.
SEBI’s SIF framework specifically provides for strategies involving derivatives and short exposure, subject to prescribed limits.
The structure is therefore aimed at investors who understand these risks and are looking beyond traditional long-only equity funds.
Who will manage the strategy?
The fund will be managed by Abhishek Jaiswal and Aalap Shah.
According to the fund house, Jaiswal has more than 18 years of investment management experience across long, long-short and sector-focused equity strategies. Shah has more than 20 years of experience in Indian equity and derivatives markets.
The strategy’s stated objective is to seek long-term capital appreciation by investing predominantly in listed equity and equity-related instruments, while using selective short exposure through derivatives.