Types of Specialized Investment Funds (SIFs) and How They Invest

If you’ve already read our previous article on what a Specialized Investment Fund (SIF) is, you know that SEBI introduced SIFs to bridge the gap between mutual funds and portfolio management services (PMS).

But what many investors don’t realize is that SIFs come in multiple formats and strategies, each designed for a different investment approach and liquidity preference.

In this article, we’ll simplify the 3 main SIF categories - Equity-Oriented, Debt-Oriented, and Hybrid Funds - and the specific strategies under each. You’ll also find a full comparison table that helps you understand what differentiates them in terms of assets, features, and withdrawal frequency.

The Three Main Categories of SIFs

SIFs can take both long and short positions - meaning they can benefit from both rising and falling markets. Depending on the underlying assets and approach, SEBI classifies them into three broad types:

• Equity-Oriented Funds – Focus primarily on listed equities with flexibility to short-sell or hedge using derivatives.
• Debt-Oriented Funds – Invest in fixed-income instruments but use short strategies to manage interest rate and credit spread risks.
• Hybrid Funds – Combine equity, debt, and other asset classes dynamically, using long-short positions across both sides.

Comparison of SIF Types at a Glance

Below is a simplified view based on SEBI’s classification and fund structures seen in recent AMC launches.

Breaking Down the SIF Categories

1. Equity-Oriented SIFs

These funds operate like actively managed equity portfolios with the added freedom to take short positions. They can hedge against market volatility and use derivatives to fine-tune exposure.

Example strategies:

• Equity Long-Short Fund: Buys undervalued stocks and shorts overvalued ones to generate market-neutral alpha.
• Equity Ex-Top 100 Long-Short Fund: Focuses on smaller, less-researched companies to capture inefficiencies.
• Sector Rotation Long-Short Fund: Dynamically shifts between sectors such as tech, banking, and FMCG based on outlook.

Liquidity: Usually daily redemption windows, depending on fund design.

2. Debt-Oriented SIFs

These SIFs go beyond conventional debt funds by taking tactical short exposures on interest rate movements or credit spreads. They can manage risk actively by using interest rate futures, swaps, or credit derivatives.

Example strategies:

• Debt Long-Short Fund: Mixes long-term debt holdings with short positions to navigate changing yield curves.
• Sectoral Debt Long-Short Fund: Focuses on debt exposure across a few chosen industries like infrastructure or banking.

Liquidity: Weekly redemption cycles (due to settlement and underlying market structure).

3. Hybrid SIFs

Hybrid SIFs combine the best of both worlds - equity and debt - and can tactically shift allocations depending on market cycles. These funds can go long or short in either asset class, giving them the flexibility to manage returns and risk dynamically.

Example strategies:

• Active Asset Allocator Long-Short Fund: Uses a flexible approach - allocating dynamically among equities, bonds, commodities, or REITs based on the market outlook.
• Hybrid Long-Short Fund: Keeps a consistent blend of equity and debt, hedging when needed to protect downside.

Liquidity: Typically allows twice-weekly redemptions to balance liquidity and stability.

Key Distinguishing Features of SIFs

SIFs differ significantly from mutual funds not just in flexibility, but also in structure and risk profile.

• Can take unhedged short positions: Using derivatives, SIFs can profit from falling prices - something mutual funds can’t do.
• Target sophisticated investors: Minimum investment of ₹10 lakh per investor per AMC ensures participation from informed individuals.
• Wider investment universe: Includes REITs, InvITs, commodities, and structured credit products beyond typical MF exposure.
• Limited redemption windows: Daily for equity-oriented, weekly for debt-oriented, and twice-weekly for hybrid SIFs.
• Dynamic strategies: Active long-short allocation allows better risk-adjusted returns across market cycles.
• Higher risk, but structured management: Greater freedom means higher exposure, but also advanced risk controls built into the framework.

How to Evaluate and Choose a SIF Scheme

Before selecting any Specialized Investment Fund, it’s important to understand that each SIF strategy serves a specific purpose - whether that’s managing volatility, generating income, or pursuing alpha through tactical allocation.

Your decision should depend entirely on your risk tolerance, investment horizon, and financial objectives, rather than on market sentiment or product complexity.

Every fund is required to publish an Investment Strategy Information Document (ISID) - a SEBI-mandated disclosure outlining the fund’s strategy, instruments used, risk parameters, and liquidity windows. Reading the ISID carefully before investing is essential to understand what the scheme is designed to achieve and how it manages risk.

Final Thoughts

SIFs mark a new chapter in India’s investment landscape - a step closer to global-style long-short and absolute-return frameworks, yet with SEBI oversight.

Their strength lies in how they let investors participate across market cycles - without being locked into a single direction. Understanding their types, strategies, and liquidity structures is key to making informed, confident decisions.