Hybrid SIFs: How these specialised investment funds are filling the risk-return gap

Nine months after their debut, it is becoming clear that specialised investment funds (SIFs) are reshaping the investment landscape. No, the big revolution is not in equities. The real shift is occurring in hybrids. Hybrid long-short SIFs are emerging as the dominant segment within the category. As of June 2026, these funds manage assets of Rs.11,910 crore, nearly 67% of total SIF assets of Rs.17,858 crore. Here is what is telling: Nearly every major AMC that has entered the SIF space launched a hybrid long-short strategy first. This is not by chance. It is a conscious bet on a category that is likely to play a big role in investor portfolios in the coming years. Let’s explore why hybrid SIFs are carving a distinct identity for themselves, and how investors should treat this emerging space.

The derivatives edge

SIFs were introduced to fill the chasm between mass-market mutual funds and high-ticket portfolio management services (PMS) or Alternate Investment Funds (AIFs). They are equipped with the distinct capabilities of AIFs while running within the guardrails and taxfriendly provisions of mutual funds. The big differentiator—SIFs can pursue both ‘long’ and ‘short’ bets, unlike traditional mutual funds’ long-only constraints. Further, SIFs are permitted to harness a wide range of derivative strategies to pursue opportunities across rising, falling and sideways markets.

SIFs were initially seen as a way for equity investors to access differentiated strategies. Instead, they are gaining the most traction in the hybrid space. Like traditional hybrid funds, they combine equities, debt and arbitrage, but with a much wider investment toolkit.


Aditya Agrawal, Co-founder, Wealthy.in, observes, “Traditional hybrid funds usually reduce volatility through asset allocation. They combine equity with debt, gold or arbitrage, depending on the category. Hybrid SIFs add another layer because they can use derivatives to reduce risk or hedge the portfolio.” This is important because, so far, investors had not seen derivatives being used widely in a way that directly protects them from market downside. He further points out that, unlike in equity long-short SIFs, derivatives in hybrid SIFs are not used to make money through directional short positions or sector calls. In hybrid SIFs, the role of derivatives is primarily about managing volatility and protecting against downside risk.

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Dharmendra Jain, Co-founder, Ionic Wealth, maintains that traditional hybrid MFs are constrained by a long-only mandate and rely mainly on fixed income allocations to cushion equity drawdowns. Hybrid SIFs, under the Securities and Exchange Board of India (Sebi) framework, are allowed to take unhedged short positions via derivatives (up to 25% of net assets). “This structural advantage gives managers the tools to actively profit from falling assets or build naked hedges against portfolio vulnerabilities.” This is why they are emerging as a strong alternative to traditional hybrid funds, suggest experts.

But hybrid SIFs may not necessarily replace traditional hybrid funds for every investor. For certain investor profiles, they are also a superior, more stable option to debt funds, points out Ankur Punj, MD & Business Head at Equirus Wealth. “I would view them less as alternatives to traditional hybrid funds and more as tax-efficient alternatives to debt-oriented strategies. Most launches so far have been positioned as products aiming to deliver debt-plus returns with relatively low volatility, while benefiting from the mutual fund tax structure,” argues Arihant Bardia, CIO and Founder, Valtrust.

Agarwal views hybrid SIFs as a credible option for investors who want a smoother return experience than pure equity funds, but do not want to remain only in arbitrage or debtoriented products. The larger reason these products are gaining attention is that they are filling a gap in the risk-return spectrum, he says. Earlier, investors had the option of arbitrage funds offering around 5-6%, as well as debt funds. After the taxation changes, debt funds became less attractive for many investors. From arbitrage, investors often had to move directly to multi-asset funds or balanced advantage funds, which could offer around 9–11% returns but also carried higher equity exposure and volatility. “Hybrid SIFs are trying to plug this 6–9% return gap with relatively low volatility,” Agarwal asserts. “For an investor who wants to keep money for two-three years, does not want too much risk, but still wants around 8–9% return potential, there was earlier no simple single-product answer. Hybrid SIFs are trying to offer that answer within one product.”

Hybrid long-short SIFs have delivered healthy outcome

Allocation bands of hybrid SIFs vary

Source: sifprime.com; Overseas exposure pertains to maximum permissible allocation

Same bucket,different strategies

Lower-friction, balanced hybrid exposure

Funds: Altiva, Infinity, Apex, Arudha
What they do:These use wider 25-75 or 35-65 style equity/ debt ranges and keep the category closer to a balanced hybrid framework.

Income plus derivative overlays

Funds: Magnum, Platinum, Titanium, iSIF
What they do:These are higher-equity-band funds that lean on arbitrage, covered calls, debt, and selective unhedged equity/derivative exposure.

Model-driven or sharper return-seeking exposure

Funds: qSIF, iSIF, Titanium
What they do:These carry higher risk-band signals or more aggressive strategy language. Study drawdown, liquidity, and benchmark fit carefully.
Source: sifprime.com

Early evidence

This risk construct of hybrid SIFs is not just theory. Evidence suggests these offerings are walking the talk. Amid heightened market volatility and uncertainty, these have provided a cushion against the downside. In 2026 so far, these have averaged 2.3% return, even as balanced hybrid funds have fetched 0% and dynamic asset allocation funds have lost 0.8%.

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“The category is still new, but the early evidence has been encouraging because the products have started demonstrating the role they were created for—lower volatility and better downside management,” insists Agarwal. “Rather than just acting as a drag on returns, the downside protection toolkits are actively contributing to portfolio stability, allowing these funds to capture upside while structurally insulating capital against sharp corrections in the equity market,” suggests Jain. Compared with traditional aggressive or balanced hybrids, hybrid SIFs provide lower volatility and drawdowns, especially in market downturns and more stable, risk-adjusted returns over 1–2 year horizons, insists Punj.

However, Bardia maintains it is still too early to draw conclusions based on performance. “Most schemes have a very limited live track record, so investors should avoid extrapolating initial returns. The real test will be how these strategies behave across different market cycles.” Bardia further points out, “The downside protection is not automatic. It depends entirely on portfolio construction, hedging discipline and the fund manager’s ability to execute the strategy. A poorly structured long-short portfolio can underperform despite having access to these tools.” Even so, the early performance has helped remove some of the initial confusion around what SIFs can do in a portfolio, maintains Agarwal.

Look under the hood

SIF regulations provide fund managers with ample flexibility in how they construct portfolios. For instance, the capital market regulator, Sebi, sets a maximum limit of 25% for unhedged short exposure, but no minimum. A fund can have no short positions and still qualify as “long-short”. Managers also have wide flexibility to use derivatives, including covered calls, straddles, strangles, pair trades, arbitrage and spread strategies.

With such a wide array of tools at their disposal, don’t expect similar outcomes from hybrid SIFs. The specific strategy pursued by the hybrid SIF will determine outcomes. Bardia asserts, “Despite carrying the same regulatory label, they are being launched with very different investment objectives.”

Broadly, three approaches are emerging. One positions itself as a debt alternative, combining arbitrage, fixed income and selective credit opportunities for stable post-tax returns. Another follows an absolute-return strategy, blending arbitrage, equity, derivatives and special situations to deliver debtplus returns with controlled volatility. The third aims to modestly outperform arbitrage funds while maintaining a conservative risk profile, says Bardia.

For instance, Altiva Hybrid Long-Short Fund (run by Edelweiss Mutual Fund) is aimed at income-oriented investors seeking slightly better returns than arbitrage funds. It avoids naked shorts and limits derivatives usage to covered calls and pair trades. iSIF Hybrid Long-Short Fund (run by ICICI Prudential Mutual Fund) adopts a dynamic asset allocation strategy with net equity ranging from -7.5% to 75% and unhedged shorts capped at 10%. Meanwhile, Arudha Hybrid Long-Short (from Bandhan Mutual Fund) follows a market-neutral strategy, with full hedged equity positions capturing opportunities arising from pricing inefficiencies and spreads, rather than taking directional market exposure.

The sheer depth of tools increases the range of possible outcomes. For investors, this means getting a fix on what each manager is actually trying to achieve. Avoid treating hybrid SIFs as a homogeneous category. Agarwal insists, “The real test is whether the strategy fits the investor’s risk profile, time horizon and role within the portfolio.” Unlike traditional mutual fund categories where portfolios tend to converge, hybrid long-short.

SIFs are likely to be differentiated primarily by the fund manager’s philosophy and intent, Bardia remarks.

This is how investors can distinguish between hybrid SIFs and pick a suitable option. First, ascertain the chosen asset mix. Specifically, check the net equity exposure and how derivatives are being used. Some funds may run gross equity exposure of 45–65% but net exposure of 25–35% due to shorts or hedges. Agarwal suggests investors ascertain the purpose of the short or derivatives position. “If derivatives are being used mainly to hedge risk, the product may behave more defensively. If the strategy is taking more active calls, the return profile and risk profile may be different. Investors should understand whether the fund is trying to reduce downside, generate extra return, or do both.”

Next, check the fund’s chosen benchmark. Each SIF has its own benchmark depending on the strategy. For instance, isif Hybrid Long-Short Fund and Titanium Hybrid Long-Short Fund (from Tata Mutual Fund) track the CRISIL Hybrid 50+50 - Moderate Index, even as the Arudha Hybrid Long-Short Fund tracks the CRISIL Hybrid 85+15 Conservative Index.

Finally, liquidity differs across funds. The category houses funds with twice-weekly, weekly-with-notice, and monthly redemption structures. The exit window matters as much as the strategy itself. The hybrid SIF space certainly offers an interesting proposition. Understand that it is not a single risk bucket. It comprises a spectrum for different investor risk profiles.