SEBI’s new Rs 10 lakh bridge: Why SIFs are the missing link between mutual funds and PMS

If you are an accredited or sophisticated investor looking to play the equity market volatility, Specialised Investment Funds (SIFs) are an option. Sophisticated investors are typically defined as those with high annual income, a very respectable net worth, knowledge of the financial markets, a predominantly financial-asset portfolio, and a generally high-risk profile. The Securities and Exchange Board of India (SEBI), recognising that the risk profile of individual investors – retail, HNIs, etc. – varies, operationalised the framework for SIFs on 1 April 2025. Thereafter, from mid 2025, major asset management companies (AMCs), such as Quant, SBI, Edelweiss, Tata, and ICICI Prudential, among others, launched SIFs, primarily focusing on the long-short investment strategy. And by the end of December 2025, SIF folios touched 20,779, as per the AMFI data. Now, before I explain what the long-short strategy is, first let’s understand certain basics. What is a Specialised Investment Fund? SIF is a market-linked investment instrument, designed to bridge the gap between mutual funds and Portfolio Management Services (PMS). The minimum investment in SIF is Rs 10 lakh. Due to this threshold, it is suited for slightly sophisticated investors who are between retail investors and conventional HNIs. The minimum amount to invest in a mutual fund, as you may know, is as little as a few hundred, while in the case of a PMS, it starts at Rs 50 lakh. Thus, SEBI found it necessary to bridge this gap with SIFs. The regulatory guidelines mandate that their SIFs have a distinct brand name and logo separate from their regular mutual fund business, to avoid confusion with traditional mutual funds in the minds of investors. An AMC may offer equity-oriented, debt-oriented, or hybrid (a mix of equity and debt), and it may be an open-ended, closed-ended or an interval fund. The potential risk in an SIF is indicated with a risk band, with 1 signifying the lowest and 5 the highest. It depends on the investment mandate and strategy pursued. For illustration purposes only Source: www.edelweissmf.com Among the various strategies followed by SIFs, the long-short strategy is among the most popular ones. Also, in the current market conditions, where volatility has intensified due to a variety of geopolitical and macroeconomic factors in play, the long-short strategy seems apt to invest in equities. The Long-Short Equity SIF strategy Quant Mutual Fund was the first to launch an equity-oriented SIF with this strategy in September 2025. Under this strategy, the SIF invests a minimum of 80% in equity and equity-related instruments and a maximum of 25% in short exposure through unhedged derivative positions in equity and equity-related instruments. This enables capturing the opportunities in both upward and downward price movements. The shorting strategy, in particular, helps to profit from a fall or correction in stocks or the broader market. Then there also exist sub-variants of this strategy, for example, the Equity Ex-Top 100 Long-Short Strategy and the Sector Rotation Long-Short Strategy. Under the Equity Ex-Top 100 Long-Short Strategy, at least 65% of the assets of an SIF are in equities of stocks excluding, i.e. other than the top 100 stocks by market capitalisation, while a maximum 25% are in short exposures through derivative instruments of stocks other than large-cap stocks, thus exploiting the price inefficiencies beyond the largecap stocks. So, the Ex-Top 100 Long-Short Strategy SIFs typically target the mid and smallcap stocks (which are outside the top 100 by market capitalisation), where the pricing inefficiencies are typically higher, allowing the fund managers to short and hedge. In the case of the Sector Rotation Long-Short Strategy, the SIF invests at least 80% of its assets in equities of a maximum of 4 sectors, while a maximum 25% short exposure in equity through derivative instruments of a maximum of the four sectors. It tactically allocates to sectors with both long and short views. With the equity market witnessing sectoral shifts over the last couple of years, this strategy has also become quite popular. The fund manager could go long on sectors he is bullish on, while shorting those where he has a bearish view. This provides a tactical edge. While the broader objective of a long-short strategy is to generate alpha, i.e. generate higher returns than the benchmark index, keep in mind that it may not necessarily always transpire. The Risk involved is High You see, the risk of shorting is that it requires deep conviction, more so when the outlook for the Indian economy seems bright, favouring going long on equities. The possibility of the fund management team going wrong in its assessment of the market direction and/or the stock in the underlying portfolio is high, and thus, volatility may not necessarily always work in the fund’s favour. A so-called smart investment strategy or model can fail. A long-short equity SIF’s performance will be hinged on how astutely the fund manager assesses the risk-return potential and takes long and short positions. How have Equity SIFs with Long-short Strategy Fared? It’s been less than six months since SIFs were launched. We do not have a long-term performance track record to evaluate. However, by and large, the since inception performance of equity SIFs following this strategy shows that they are lagging the Nifty 500 – TRI. Performance of Equity SIFs Following Long-Short Strategy Data as of 3 February 2026 Source: Fund Factsheet For instance, the QSIF long-short equity SIF and Divinti Equity Long Short SIF (from ITI Mutual Fund) have delivered negative returns so far (under the direct plan) since their inception in September and December 2025, respectively, amid choppy market conditions. Among the newer ones, such as DynaSIF Equity Long-Short (from 360 ONE Mutual Fund) and ICICI Pru iSIF Equity Ex-Top 100, which were launched in January 2026, the absolute returns are -5.1% and -1.2%, respectively (as of 3 February 2026). Liquidity Another important point to note is that while equity-oriented SIFs are liquid, due to the mark-to-market risk, if the value of your total investment in SIFs falls below the minimum investment threshold of Rs 10 lakh, partial redemptions may not be permitted. In such a case, you would be required to stay invested or disinvest completely. Thus, compared to mutual funds, liquidity is a bit restricted. What about the capital gain tax? Equity SIFs are taxed in your hands just as the way mutual funds are. The short-term capital gains (holding period of less than or equal to 12 months) are taxed at 20% (plus the applicable surcharge and cess), while the long-term capital gains (holding period of more than) are taxed at 12.5% if in excess of Rs 1.25 lakh in a financial year. To conclude… Equity SIFs with a long-short strategy (or, for that matter, any SIF) are not for everyone. You need to make a sensible choice considering your personal risk profile, broader investment objective, the financial goal/s you are addressing and investment horizon. Don’t simply get carried away just because you have Rs 10 lakh to invest. Ask if it can truly add some value to your investment portfolio. Most SIFs have yet to establish a performance track record that is convincing enough for you to invest. Happy investing! Note: We have relied on data from www.valueresearchonline.com, www.financialexpress.com, and the factsheets published by the respective fund houses throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information. Disclaimer: The above content is for informational purposes only. Mutual Fund investments are subject to market risks. Please consult your financial advisor before investing. Rounaq Neroy has over 20 years of experience in the financial markets and investments. He is a close observer of the Indian economy and writes deeply on the capital markets, mutual funds, stocks, precious metals, asset allocation, wealth management, and investment strategy. His editorials provide interesting, actionable investment ideas to guide readers in the journey of wealth creation and make wise decisions. Rounaq was the Head of Content at PersonalFN (Quantum Information Services Pvt. Ltd.), which also owns Equitymaster.com – India’s oldest and trusted equity research house.