Hybrid Long-Short Specialised Investment Funds (SIFs) have become the most popular choice for investors, managing over ₹15,374 crore as of July 31, 2026. While they follow a strict SEBI rulebook, fund managers are using very different strategies to generate returns. Investors need to understand the risks, as these funds differ significantly from standard mutual funds in terms of liquidity and investment style.
Specialised Investment Funds (SIFs) in India have seen a rapid rise in interest, with Hybrid Long-Short Funds emerging as the dominant category. As of July 31, 2026, these funds managed approximately ₹15,374 crore, representing about 66% of the total ₹23,177 crore assets under management (AUM) within the SIF space. The category saw strong momentum in July, attracting ₹3,258 crore in net inflows, as sophisticated investors seek products that aim to manage risk using complex strategies.
The Uniform Rule vs. Diverse Reality
All SIFs operate under a common regulatory framework set by the Securities and Exchange Board of India (SEBI). This mandate requires funds to hold at least 25% in equity and 25% in debt. Furthermore, they are allowed to use up to 25% of their net assets for unhedged short positions using derivatives. Despite these uniform rules, the way fund managers construct their portfolios varies significantly.
Prominent fund houses such as Quant, ICICI Prudential, Bandhan, and Edelweiss are employing distinct approaches. Some managers focus on hedging—matching long equity positions with short futures to neutralize market risk. Others take a more active, directional approach, using derivatives to bet on the price movement of specific stocks or indices. For instance, while some funds use derivatives solely to protect the portfolio from market falls, others may take directional short positions in stocks they believe will underperform, creating a vastly different risk profile for the investor.
Understanding the Risks
Investors looking at these funds must look beyond the category name. Because these strategies rely heavily on derivatives, the performance depends heavily on the manager's ability to execute complex trades correctly. Unlike standard open-ended mutual funds where you can exit any day, most SIFs are structured as interval funds. This means liquidity is restricted to specific, pre-defined windows. If an investor needs money outside of these windows, they may find it difficult or impossible to sell their units.
Additionally, the risk levels assigned to these funds can vary widely, even within the same regulatory framework. Some funds may carry higher risk due to concentrated directional bets, while others may maintain a lower risk profile by focusing on arbitrage and hedging. Given that this is a relatively new category, there is limited long-term historical performance data for many schemes. This makes the fund manager’s track record and the transparency of their strategy particularly important for investors.
What Investors Should Monitor
Moving forward, the primary monitorables for investors include the specific derivative strategy of the fund, the liquidity windows defined by the scheme, and how the manager balances the equity and debt portions during market volatility. It is essential to review the fund factsheet to understand if the manager is using the short allowance for hedging or for taking directional bets, as this will directly influence the potential returns and the level of risk in the portfolio.