SIFs Explained: Should You Invest? Equity, Hybrid & Ex-Top 100 Compared

SIFs are a useful innovation, but they are not automatically superior to your existing mutual funds. They bring more flexibility, and with that flexibility comes more complexity. This is why I would never select a hybrid SIF merely by looking at its category or its recent return. Because when it comes to SIFs, the name of the category matters far less than what is happening underneath it. Over the same six-month period, one SIF delivered a return of more than 15%, while another SIF lost more than 5%.

During the same period, Nifty 50 itself was down nearly 4%. Now, before we conclude that the first fund is excellent and the second one is terrible, there is something important that you need to understand. These two funds may both carry the SIF label, but they are not doing the same job. The first one primarily invests outside India’s top 100 companies, while another is a diversified equity long-short fund. A third SIF can largely be investing in debt and arbitrage, while another one may be dynamically moving between debt, equity, commodities and REITs.

So asking, “Which is the best SIF?” is a little like asking, “Which is the best vehicle?” without telling me whether you are talking about a family car, an SUV or a racing bike. The better questions to ask are: Should you invest in an SIF at all? What kind of role should that SIF play in my portfolio? After this, we come to evaluating which individual fund can be good for you.

So that is exactly what I thought I should discuss in this video. Hi, I’m Sachin Kabra. I’ve spent about 14 years across asset and wealth management companies, and now I’m a co-founder at Foliyo.ai. Here, we try to cut through the product marketing and help investors understand how an investment can actually fit into their portfolio.

A quick disclosure before we dive in. This video is for education and not a recommendation to invest in any fund. SIFs can involve higher risk, liquidity constraints and, at times, even potential loss of capital. Now, SIFs are no longer merely an NFO story. As of 30th June 2026, the industry had 27 SIF strategies with 75,000 folios.

Assets under these were approximately ₹18,000 crore. In fact, the inflows for the last month were almost ₹3,800 crore in one month alone. The interesting part is that of the total AUM, almost ₹12,000 crore is in hybrid long-short funds. So that means investors are not just chasing aggressive equity returns. A lot of them are looking for smoother and more flexible outcomes. But whether these products will be able to deliver or not is the real question.

An SIF, or Specialized Investment Fund, is a platform created by SEBI within the mutual fund regulatory framework. The minimum investment threshold is ₹10 lakh, calculated across all the SIF strategies offered by the same AMC at an investor’s PAN level. This ₹10 lakh threshold is, of course, not applicable to accredited investors, though individual schemes can still prescribe an operational minimum. SIFs can use derivatives not only for hedging and portfolio rebalancing, but can also take short exposure up to 25% of the net assets. However, this is not an AIF-style leverage structure.

The cumulative gross exposure across equity, debt, derivatives, commodities, REITs, InvITs and other assets cannot exceed the permitted overall exposure limits. Liquidity can also be different from a regular open-ended mutual fund. A scheme may offer daily subscriptions, but redemption can be once or twice a week. There can also be specific redemption intervals depending upon the strategy.

Now let us understand long-short using ₹100. Assume the fund invests ₹75 in stocks it expects to rise. These are its long positions. It simultaneously takes ₹25 of short positions in stocks it expects to fall. So its gross exposure is ₹100: ₹75 long plus ₹25 short.

But its net equity exposure is only ₹50 because ₹75 is long minus ₹25 short. Now imagine both the long portfolio and the shorted stocks fall by 20%. The long portfolio loses ₹15, while the short portfolio earns ₹5. So the fund still loses ₹10. Shorting may reduce a loss, but it does not automatically prevent losses completely.

And if the manager shorts the wrong companies and those stocks rise, the short positions can generate losses and add to the overall losses. Permission to short is not the same as successful downside protection. The 25% is also only a maximum. A scheme is not required to maintain that 25% short exposure at all times. Some funds may want to short primarily as protection.

Others may want to create alpha through shorting. Some may use index futures for shorting, while others may use individual stocks. Some may think only in terms of arbitrage, covered calls or some sort of special situation. Therefore, before investing, ask two questions. The first is: how much short exposure does the fund normally expect to carry? On average, how much does it have?

Second: what is that short exposure trying to achieve? Is it hedging? Is it trying to generate additional returns? What is the purpose?

Investors normally say, “I want to invest in equity,” “I want to invest in debt,” or “I want to invest in a hybrid fund.” But saying, “I want an SIF,” is incomplete because an SIF is a wrapper. The correct question is: what job does this SIF perform in my portfolio? Is it replacing a debt fund? Is it replacing an arbitrage fund?

Is it replacing an equity savings fund that I had? Is it competing with my existing flexi-cap fund? Or am I trying to take an aggressive bet through small- and mid-caps as a satellite allocation? Until these questions are answered, comparing various SIF returns has very little meaning.

Let’s take the largest SIF category, which is hybrid long-short funds. The first example is Arudha Hybrid Long-Short Fund. The indicative portfolio construction for Arudha Hybrid includes a debt allocation of up to 65%, a minimum 35% equity allocation, and fully hedged equity exposure. So that means it has a market-neutral approach with no directional equity calls. The target debt duration is approximately one to four years.

Its return engines are primarily debt accrual, arbitrage and pricing spreads or discrepancies that the fund manager can find. So, in practical terms, this looks more like a debt-plus-arbitrage product and not like a traditional aggressive hybrid equity fund. The second example is Altiva Hybrid Long-Short Fund. Altiva’s indicated allocations are quite different: 40% to 60% in fixed income.

20% to 40% in cash-futures arbitrage and covered calls. 10% to 20% in derivative strategies. And up to 10% in special situations. Special situations can include IPOs, open offers, buybacks, mergers, demergers or other exclusive opportunities. So this is closer to an income-oriented absolute-return strategy with an event-driven derivative overlay.

The third example is iSIF Hybrid Long-Short Fund. iSIF Hybrid has an indicative allocation of 65% to 75% in equity and equity-related securities, 25% to 35% in debt, and up to 10% in other assets, including InvITs. So this is much more like an equity-led hybrid strategy, which is quite different from the Arudha and Altiva structures that we discussed. The fourth example is qSIF Hybrid Long-Short Fund. qSIF Hybrid permits exposure across equity, arbitrage and unhedged equity spot positions, unhedged long derivative strategies, unhedged shorts, debt and money-market instruments, along with opportunistic use of covered calls, pair trades, IPOs, REITs and InvITs.

So this has a completely distinct return engine compared with a traditional hybrid equity category. We effectively have four funds in one regulatory category: Debt plus arbitrage. Income plus special situations. Equity-led hybrid.

And model-driven long-short hybrid. So this is why I would never select a hybrid SIF merely by looking at its category or its recent return. Now let’s look at some other interesting SIF categories.

First, the Equity Long-Short Fund. An Equity Long-Short Fund must invest at least 80% in equity or equity-related instruments and can take up to 25% of unhedged short exposure. Think of it broadly like an actively managed equity portfolio with an additional shorting toolkit. But it remains more like equity risk and should not be considered a capital-protection kind of product. Second, the Equity Ex-Top 100 Long-Short Fund.

This category must invest at least 65% in companies outside the top 100 by market cap. It combines a mid- and small-cap opportunity with limited shorting flexibility. However, there is a practical nuance here. In small-cap stocks, usually you do not find liquid futures and options. So, in qSIF Equity Ex-Top 100, for example, the long positions are expected to be predominantly in small- and mid-cap stocks, while the short positions are expected to be predominantly in the more liquid mid-cap and F&O universe.

So the short book may not perfectly hedge the risk of the small-cap and mid-cap long positions. This category should therefore be treated as a high-risk satellite allocation, and not as a safer small-cap fund. The next would be the Active Asset Allocator Long-Short Fund. This can dynamically invest in equity, debt, commodities, REITs and even InvITs. For example, qSIF Active Asset Allocation Fund has indicative ranges across equity and equity arbitrage, debt, commodities and unhedged shorts, along with hedging flexibility.

This makes the category highly flexible, but also highly dependent on the fund manager’s allocation model and timing decisions. The next interesting category would be the Sector Rotation Long-Short Fund. This category can invest in a maximum of four sectors, with at least 80% equity exposure. The short exposure operates at the sector level. So if a sector is designated short, the scheme’s position within the sector must be short.

This can be a concentrated, high-conviction strategy and hence would not obviously be advised as the first preferred SIF for most investors.

Now let’s use the early performance data for one purpose: to understand the dispersion and not to rank the funds. According to the latest data as of 20th July 2026 for regular growth plans, Nifty 50 for the last six months delivered a -3.94% return, while Nifty 500 TRI delivered a positive 2.49% return. Over the same six-month period, qSIF Equity Ex-Top 100 was up 15.53%, while Diviniti Equity Long-Short was down 5.19%. This dispersion is important, but it does not prove that qSIF is the best SIF and Diviniti is a bad strategy. The funds started on different dates, carry different market exposures, follow different processes, have different benchmarks and, in fact, are supposed to perform different roles in your portfolio.

A debt-plus-hybrid SIF should not be expected to outperform an Ex-Top 100 fund in a strong mid-cap rally. Similarly, an equity SIF should not be judged against a conservative hybrid benchmark. So this data proves one thing: the SIF category is already producing a wide range of outcomes. It does not yet tell us which manager will be able to ride comfortably through a complete market cycle.

Now let’s build a six-question SIF selection framework. The first question is: what is this fund replacing? Is it replacing debt, arbitrage or equity savings? Is it adding a flexi-cap or small-cap exposure to my portfolio? It should not be the case that I’m adding the SIF just because it is a new category.

Second question: what is the normal net equity exposure that the fund may have? Don’t just ask for the standard or permitted asset-allocation ranges. Ask more specifically: What would be the normal net equity exposure? What short exposure is expected?

What is the expected portfolio beta, if you can get it? And how may these numbers change as the market cycle changes? Third question: where will the return come from? What are the return engines for the fund? Is it through long equity?

Debt allocation? Arbitrage? Covered calls? IPOs? Special situations?

What kind of tactical asset allocation is the driver of the return? The more return engines the fund has, the more important it becomes to understand the fund-management process. The fourth question is: what can go wrong in the strategy? Can the long and short books both generate losses simultaneously? Is the fund taking credit risk in the debt portfolio?

Can the option strategy lose suddenly when there is a big movement in volatility? Is the small-cap portfolio liquid enough? Can the asset-allocation model remain on the wrong side for a long time as the market moves? The next question can be: how quickly can I exit? Check the actual redemption frequency, and not just whether it is an open-ended or interval fund.

For example, iSIF Hybrid permits redemption twice a week, on Mondays and Wednesdays, and applies an exit load of 1% if you redeem within a 12-month period. Other funds can have completely different days for exits and different load structures. The next question is: what are the cost and tax implications? Check the TER for regular or direct plans. Check brokerage.

Check the exit load. And also check the tax implications. Different funds can have different tax implications. And, of course, tax should not be the only reason for you to invest in an SIF strategy.

Now let’s look at who should consider an SIF. An SIF may be relevant when you already have an emergency fund. Your insurance and near-term financial goals are taken care of. You already have a diversified core portfolio. And this ₹10 lakh is money that you may not need in the near term and may be part of a satellite allocation.

You also have to understand the strategy and the return engines within that strategy. You should be comfortable with the liquidity constraints. And, of course, these products have very short track records, so you should be comfortable with that.

Now let’s look at who they may not be appropriate for. An SIF may not be appropriate when this ₹10 lakh is probably most of your financial savings. Or this money is earmarked for a house, education or another near-term goal that you may have. Or you’re investing because you’ve seen the last three months’ performance and it looks very attractive. Or you believe long-short funds mean they can never lose money.

Or you’re using an SIF as a substitute for creating a proper asset-allocation plan. The minimum regulatory ticket of ₹10 lakh does not automatically make an investor suitable. Having ₹10 lakh available to invest does not mean that ₹10 lakh should be invested in an SIF. So what is the better test? The better test is:

Can I afford for this strategy to disappoint for two or three years without disturbing any of my financial goals?

So which type of SIF should you choose? Here is my broad framework, and not a scheme recommendation. For relatively conservative investors, study income-oriented hybrid SIFs whose major return engines would be debt, arbitrage and market-neutral strategies, like Arudha and Altiva that we discussed. They have similar broad positioning, but they are not identical. For investors seeking smoother equity participation, you can look at hybrid SIFs with meaningful equity exposure.

But compare their actual net equity ranges. iSIF Hybrid, qSIF Hybrid and Apex Hybrid can potentially occupy this broad space, but net equity can differ and derivative exposure can also differ. For aggressive equity investors, Equity Long-Short SIFs can be considered as a satellite allocation around the existing equity core. They should still be treated like an equity product and not as a hedged deposit. For aggressive mid-cap and small-cap investors, Ex-Top 100 SIFs provide a differentiated opportunity.

But investors who already have significant mid- and small-cap exposure in mutual funds should consider whether it is actually adding diversification or whether concentration in the same names may go up. For investors who are looking for dynamic asset allocation, maybe an Active Asset Allocator SIF can outsource this responsibility to a fund manager. But this is arguably one of the most manager- and model-dependent categories. For highly tactical investors, maybe a Sector Rotation SIF can be relevant. But because of the concentrated four-sector framework, this probably cannot be your first SIF.

To conclude this conversation, SIFs are a useful innovation. They bring strategies such as long-short investing, special situations and dynamic multi-asset allocation into a regulated, mutual fund-like framework. But they are not automatically superior to your existing mutual funds. They bring more flexibility, and with that flexibility comes more complexity, more dependency on the fund manager and a wider range of possible outcomes. So for most investors, conventional mutual funds should continue to form the core part of their portfolio.

SIFs should be added only when they solve a clearly identified portfolio problem. Do not begin with: “Which SIF has given the highest return?” Begin with questions like: What is the job this fund will perform in my portfolio?

What are its actual return engines? What is the net market exposure that this fund may have? And, of course, what can go wrong? Only after answering these questions should you decide whether the fund deserves ₹10 lakh of your portfolio. Because when it comes to SIFs, the name of the category matters far less than what is happening underneath it.

I hope this conversation helped you build better portfolios and make better investment decisions. Signing off. Sachin Kabra. Please like, subscribe and share. Thank you.