SIFs attract Rs 22,328 crore since launch. Should mutual fund investors use them as satellite allocation?

Specialised Investment Funds (SIFs) are rapidly emerging as a new investment option for investors looking beyond traditional mutual funds. Since their launch in October 2024, SIFs have received Rs 22,328 crore in inflows, according to a Vallum Capital report.

But does the growing investor interest mean retail investors should consider investing in these funds and should mutual fund investors use these products as a separate portfolio allocation?

The sharp rise in SIF inflows reflects growing interest in strategies that can use long-short positions, dynamic asset allocation and derivatives. However, experts caution against investing in SIFs simply because the category is attracting money.


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Gaurik Shah, Sr VP – Equity Investments, Mirae Asset Mutual Fund told ETMutualFunds that SIFs are an evolving category with a wide range of strategies, so investors need to evaluate each product on its own merits, they should not be viewed as a replacement for traditional long-only mutual funds instead, SIFs can serve as an additional tool in an investor's portfolio, depending on the role they are expected to play.

The key question for investors, according to Shah, should be whether an SIF provides an incremental benefit in terms of diversification, risk management or return potential.

Swati Jain, CEO Wealth, Arihant Capital Markets shared with ETMutualFunds that the growing interest in SIFs certainly makes them worth exploring, but investors should not invest just because money is flowing into them.

For most investors, SIFs may be better suited as a small satellite allocation rather than replacing their core mutual fund portfolio and investors with a larger portfolio, higher risk appetite and an understanding of relatively complex strategies can consider allocating a limited portion to SIFs for diversification.

According to the report, in July 2026 (last available data), SIFs received an inflow of Rs 4,922 crore with hybrid investment strategies contributing Rs 3,468 crore and equity oriented investment strategies contributing Rs 1,454 crore.

SIFs managed assets worth Rs 23,177 crore as of July 31, 2026. Of this, Rs 6,654 crore was managed across 19 long-short strategies, including 11 Equity Long-Short, seven Equity Ex Top 100 Long-Short and one Sector Rotation Long-Short strategy.

Investment Strategies Under SIFs

SIFs offer multiple investment strategies across equity, debt, and hybrid asset classes. There will be three equity oriented investment strategies - equity long short fund, equity ex-top 100 long-short fund, and sector rotation long-short fund.

Similarly debt will have two investment strategies - debt long-short fund and sectoral debt long-short fund. Hybrid will also have two investment strategies - hybrid long-short fund and hybrid long-short fund.

SIF funds : strategy and asset allocation

With SIFs offering multiple strategies and for investors entering the category for the first time, choosing between these strategies can be challenging and what allocation to have in these strategies.

Experts suggest investors should first assess the risk profile and portfolio role of a strategy instead of chasing the best-performing category. Jain said for someone investing in SIFs for the first time, a diversified or active asset-allocation strategy could be a good starting point, as it spreads the investment across different asset classes and helps avoid excessive concentration in one area.

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“Long-short equity strategies may be more suitable for investors who are comfortable with equity market risks and understand how such strategies work. Similarly, an equity ex-top 100 long-short strategy can offer opportunities beyond large-cap stocks, but it may also come with higher volatility.”

Ultimately, there is no one-size-fits-all approach—the right strategy should depend on the investor's risk appetite, investment horizon and comfort with the underlying strategy, rather than simply chasing the best-performing option, she further said.

Shah said rather than selecting a SIF based on category, investors should classify strategies by risk profile: conservative, balanced, or aggressive and the right choice depends on how the strategy fits into the overall portfolio and whether it helps improve risk-adjusted returns.

For first-time investors, a diversified asset-allocation approach may be easier to understand, while more sophisticated long-short strategies require a deeper appreciation of their risk-return characteristics, Shah further said.

How SIFs performed in 3 months and 6 months

A report by SIF360 showed that the top five SIFs delivered upto 14% return in the last six months (February 1, 2026 to July 31, 2026) including all SIF strategies with QSIF Active Asset Allocator Long-Short Fund, a hybrid long-short SIF strategy, delivering the highest return of 13.39% in the last three months.

The report further said that the top five SIFs delivered upto 21% return in the last six months with QSIF Equity Ex-Top 100 Long-Short Fund, an equity ex-top 100 SIF strategy, delivering the highest return of 20.53% in the last six months.

The top three SIF platforms account for approximately 70% of the industry's total AUM, highlighting the strong early leadership of established asset management companies. At present 30 live SIF platforms are operational and the industry assets currently stand at Rs 23,177 crore and eight platforms have already crossed Rs 500 crore in AUM. Altiva SIF by Edelweiss Mutual Fund had the largest AUM of Rs 8,143 crore as of July 31, 2026 representing nearly one-third of the entire SIF industry.

Choosing SIFs: Mistakes to avoid and parameters to check

Investors often make the mistake of choosing the fund based on their recent performance and overlook the concept of choosing a fund based on their risk tolerance ability, investment horizon and financial goals. Mutual fund investors before selecting a fund evaluate it on the basis of its performance, key risk ratios, consistency, market downturns, ranking within the category and several other parameters.

Shah said the biggest mistake is to choose a SIF purely based on recent returns, especially since most strategies have limited track records and many SIFs use dynamic allocations and derivatives, which can create non-linear risk profiles that may not be visible in standard return data.

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He further said that investors should focus on understanding the source of both risk and alpha, and evaluate factors such as downside protection, drawdowns, volatility, consistency, and risk-adjusted returns rather than relying solely on past performance.

Jain said the biggest mistake is to select a SIF only because of its past returns, investors should first understand the strategy, risk involved, liquidity, costs and how it fits into their overall portfolio.

“Apart from returns, look at rolling returns, volatility, maximum drawdown, downside capture and Sharpe/Sortino ratios to understand how consistently the SIF has performed and how much risk it has taken. Simply put, the best SIF is not the one with the highest return, but the one that delivers consistent returns while managing downside risk well,” Jain further said.

What does each SIF strategy mean?

In Equity Long-Short Fund, the minimum investment in equity and equity related instruments will be 80% and maximum short exposure through unhedged derivative positions in equity and equity related instruments will be 25%.

In Equity Ex-Top 100 Long-Short Fund, the minimum investment in equity and equity related instruments of stocks excluding top 100 stocks by market capitalization will be 65% and maximum short exposure through unhedged derivative positions in equity and equity related instruments of other than large cap stocks will be 25%

In Sector Rotation Long-Short Fund, minimum investment in equity and equity related instruments of maximum 4 sectors will be 80%, and maximum short exposure through unhedged derivative positions in equity and equity related instruments will be 25%.

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Which SIF strategy could do well over the next 3-5 years?

With the investment environment expected to remain volatile and investors looking for long term SIF strategy for investment for over the next three to five years, Jain said given the current market environment, Hybrid Long-Short and Active Asset Allocation strategies look well placed for the next 3–5 years as their flexibility to move across asset classes and manage downside risk can be useful when markets are volatile or go through different cycles.

For investors who are comfortable taking higher equity risk, Equity Long-Short can also be considered and ultimately, the right choice should depend on the investor’s risk profile, investment horizon and overall portfolio, she further said.

Shah said that in the current environment of relatively modest return expectations, hybrid long-short strategies appear well positioned as they have the potential to generate alpha while managing downside risk, making them a compelling alternative for investors seeking better risk-adjusted returns than traditional conservative investment options.

Investors should focus on a strategy's role, risk profile, and diversification benefits rather than chasing past returns and also risk profile, portfolio fit, and downside protection matter more than headline returns, he further said.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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