At a time when the broad market returns are muted, hybrid long-short specialised investment funds (SIFs) have managed to generate positive returns. These funds take equity exposure while using short positions and derivatives to manage downside risk.
Over a six-month period, the average returns of these funds is 4.8% against only 0.1% for Nifty 500. As of July-end, hybrid long-short SIFs account for 66% of the total Rs 23,177 crore of assets under management of SIF.
They are suitable for investors with Rs 10 lakh-plus investible surplus, moderate-to-high risk appetite and looking for differentiated strategies beyond traditional equity. Launched in October 2026 as a new investment category, they bridge the gap between traditional mutual funds and portfolio management services (PMS). These funds are gaining popularity mainly because of shorting and hedging strategies that were earlier confined to PMS with ticket size above Rs 50 lakh.
Aditya Agarwal, chief investment officer, Avisa Wealth Creators, says unlike conventional equity funds that largely depend on markets rising, these strategies aim to generate returns from both stock selection and market/sector divergences. “This makes them particularly relevant in volatile or range-bound markets,” he says.
Investment strategy of hybrid long-short SIFs
Every hybrid long-short SIF has to keep at least 25% in equity and 25% in debt, and the unhedged short side (using derivatives) cannot go above 25% of net assets. Inside those boundaries, there are four engines driving returns.
First, the debt allocation gives steady carry. Second, directional equity is the growth kicker. Third, the options overlay limit both upside and downside. And finally, the market-neutral bucket such as cash-futures arbitrage and event-driven bets around initial public offers, buybacks, or open offers act as enhanced drivers.
The long positions generate alpha while derivatives hedge market risk. “In a market that has been stuck in a range with plenty of volatility, covered calls are actually generating real income, and the volatility is keeping arbitrage spreads alive,” says Sonam Srivastava, founder, Wright Research PMS.
Checklist for investing
Hybrid long-short SIFs should be a satellite allocation — to be added once the core portfolio is in place. Pedigree of the fund house, strategy, track record, fund manager and quantitative metrics are equally important.
Nirav R Karkera, head of research, W by Groww, wealth management arm of Groww, says one must look at how much return was generated for the risk taken. “It is why volatility, beta, maximum drawdown and consistency matter more than headline numbers here,” he says.
Disclaimer: This article is for informational purposes only and should not be construed as investment advice. Investors should assess their financial goals, risk appetite and consult a qualified financial advisor before making investment decisions.
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