SIFs Explained: How ICICI Prudential AMC’s Rajat Chandak plans to use hybrid long-short strategies to smooth returns

With Sebi opening the door to the Specialized Investment Fund (SIF) framework, asset managers now have a new structure to offer more flexible, strategy-led products that sit between mutual funds and PMS. In an interaction, Rajat Chandak, Senior Fund Manager at ICICI Prudential AMC, explains how hybrid long–short SIFs use derivatives, valuation discipline, and tactical asset allocation to target smoother, risk-adjusted returns across market cycles. Edited excerpts from a chat: What gap does the SIF framework fill between mutual funds and PMS/AIFs? A Specialized Investment Fund (SIF) is an investment avenue positioned between portfolio management services (PMS) and mutual funds. SIFs offer greater flexibility in portfolio construction, including calibrated use of derivatives, which is not possible within the traditional mutual fund space. Also, the minimum ticket size for PMS is higher, which limits access for many investors. In effect, SIFs bridge the gap by offering enhanced strategy flexibility without the complexity, concentration risk, or entry barriers associated with PMS. What is the iSIF Hybrid Long–Short Fund trying to deliver compared with a regular hybrid fund? The iSIF Hybrid Long–Short Fund is an interval strategy that invests across equity and debt, with the flexibility to take limited short exposure in both asset classes through derivatives. Unlike a traditional hybrid fund that is largely long-only, this strategy aims to deliver more consistent, risk-adjusted returns with lower volatility by actively using long-short positions, derivatives, and special situations. In rising markets and in falling markets, where do returns come from? The strategy aims to generate risk-adjusted returns across market cycles by combining long and short positions in equity and debt, along with derivative strategies and special situations. In rising markets, returns are mainly driven by selective long equity exposure, derivatives, and alpha from special situations. In falling or volatile markets, performance is supported by short positions, hedging strategies, carry from debt, and volatility-based derivative strategies, helping to smooth outcomes regardless of market direction. In what situations would you take net equity very low or even negative? The strategy follows a buy-low, sell-high discipline. Net equity exposure may be reduced sharply, or even turned negative, when market valuations are elevated and the risk-reward becomes unfavorable. Conversely, net equity exposure may be increased when valuations become attractive and downside risks are limited. Your allocation is linked to Nifty P/B bands. How much of this is rule-based versus fund manager judgment? Allocation decisions are driven by a combination of model-based inputs and fund manager discretion. Valuation indicators such as Nifty P/B bands form an important input to the allocation framework. However, the fund manager retains flexibility to adjust exposures based on other model inputs, market dynamics, liquidity conditions, special situations, and derivative opportunities. Are derivatives used more for risk control or for generating returns and income? Derivatives may be used for both risk management and return generation. They can be employed for hedging, portfolio rebalancing, income generation, or for taking selective directional or relative-value positions, depending on market conditions. Live Events When do you write calls aggressively, and when do you step back to avoid capping upside? Aggressive call writing is considered when markets appear slightly overvalued or range-bound, as this allows the strategy to generate income and reduce volatility. The strategy steps back from aggressive call writing when valuations are attractive or when the probability of strong upside participation increases, to avoid capping returns. How do you justify the cost of buying puts, and what signals trigger protection? Buying puts is viewed as a portfolio insurance cost aimed at protecting capital during periods of heightened downside risk. Protection is typically initiated when valuation extremes, rising volatility, macro or liquidity stress, or asymmetric risk-reward conditions are observed. While buying puts incurs a cost, it helps limit drawdowns, improve return consistency, and preserve capital during sharp market corrections. With redemptions allowed only twice a week, who is this product best suited for and who should avoid it? The iSIF Hybrid Long–Short Fund is best suited for investors seeking lower volatility and risk-adjusted returns, diversification across market cycles, and a combination of equity growth, debt stability, and tactical derivative strategies, along with potential tax efficiency. Investors who require daily liquidity, have a short-term investment horizon, or are uncomfortable with derivatives-based strategies should avoid this product. (You can now subscribe to our ETMarkets WhatsApp channel) (What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .) Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today. Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price ...moreless (You can now subscribe to our ETMarkets WhatsApp channel) (What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .) Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today. Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price ...moreless Tax shock looms, but ITC’s bigger worry is losing market share to Godfrey Phillips Why high economic growth rate doesn’t translate into high stock returns JSW Infra’s INR1,200-crore shopping of three promoter firms raises eyebrows Why Warren Buffett won't invest in SIPs Scott Adams and the weasel-proof wallet 1 2 3