Does a long-short SIF protect me if the market crashes?

Published 19 September 2026

Rakesh from Gurugram

Since long-short SIFs can short stocks, does that mean they have built-in downside protection and cannot lose as much as a normal equity fund?

Sachin Kabra ex-Director HDFC Private Wealth, Business Head Motilal Oswal AMC LinkedIn

Not necessarily.

Shorting can reduce losses, but it does not automatically prevent losses.

For example, if a fund has ₹75 in long positions and ₹25 in short positions, and both sets of stocks fall by 20%, the long portfolio loses ₹15 while the short portfolio earns ₹5.

The fund still loses ₹10.

And if the manager shorts the wrong companies and those stocks rise, the short positions themselves can add to the losses.

The permitted 25% short exposure is also only a maximum. A fund is not required to maintain that level at all times.

Permission to short is not the same as successful downside protection.

“Shorting may reduce a loss, but it does not automatically prevent losses completely.”

“Permission to short is not the same as successful downside protection.”

This answer is derived from Sachin Kabra’s video on Specialized Investment Funds.

This is not personalized investment advice. Your portfolio, goals, liquidity needs and risk tolerance may be different, so assess your own situation and discuss it with your financial advisor.

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