As the Nifty 50 index dropped 6.1% in September 2026, several Category III long-short Alternative Investment Funds managed to deliver positive returns. By using hedging strategies, these funds protected capital from rising oil prices and global rate hike fears, with some funds achieving notable gains while traditional equity portfolios faced losses.
The month of September 2026 proved challenging for traditional equity investors in India, with the Nifty 50 index retreating by 6.1% amid global economic pressures. A combination of a hawkish stance from the US Federal Reserve, crude oil prices climbing above $100 per barrel, and consistent selling by foreign institutional investors created a difficult environment for standard equity portfolios. However, within this volatility, Category III long-short Alternative Investment Funds (AIFs) stood out by utilizing defensive strategies to maintain, or even grow, their portfolio values.
How Long-Short Strategies Protected Capital
Unlike traditional mutual funds that primarily bet on stock prices rising, long-short AIFs use a dual strategy. They hold positions in stocks they expect to rise (long) while also betting against stocks they expect to fall (short) or using derivatives to hedge. This flexibility allowed these funds to avoid the full brunt of the market correction.
Swyom Advisors’ India Alpha Fund emerged as a top performer for the month, recording a 6.8% gain. The fund combines listed equities with other instruments like corporate actions and unlisted assets. Swyom is currently expanding its presence, having filed its Draft Red Herring Prospectus for a BSE SME listing, with assets under management approaching Rs 315 crore. Other strategies also showed resilience, with SBI Optimal Equity continuing to perform through its aggressive mandate, and the newer PESB Alpha Fund, with an AUM of Rs 50 crore, successfully managing its first major market stress test since its late 2025 launch.
Focus on Capital Preservation
Beyond those seeking aggressive returns, several funds focused primarily on shielding capital from market dips. Strategies such as the Geojit Yield Plus Fund, AlphaGrep AlphaMine Absolute Return Fund, and those managed by Pluswealth Assets maintained positive trajectories during the month. These funds often lean toward fixed-income-plus structures, which are designed to act as a cushion during times of stock market instability. The steady performance observed in funds from IIFL Capital, Inquant Systematic, and Neo Alternative points to an increasing preference among institutional and high-net-worth investors for absolute-return mandates that do not rely solely on the market moving upward.
What Investors Should Track
While these results are positive, investors should remember that AIFs operate differently than standard mutual funds. They generally require a minimum investment of Rs 1 crore, come with different liquidity terms, and are typically geared toward sophisticated investors. The success of these strategies in September highlights the importance of hedging in a volatile market, but investors should evaluate whether such complex strategies align with their personal risk appetite and long-term financial goals. Monitoring the ability of these funds to maintain their hedging efficiency when market trends change remains the key factor to watch.