Will SIFs Unlock India's Shorting Game—Or Remain Long-Only in Disguise?

Key challenges: limited short-selling culture, training and low fund manager conviction

- Kunj Bansal & Rasmeet Kohli

Sebi's specialized investment fund (SIF) framework, effective 1 April 2025, aims to bridge the gap between mutual funds and portfolio management services (PMS). It gives retail and sophisticated investors access to tactical, aggressive strategies, including long-short equity, under a pooled structure. Unlike PMS—which manage portfolios individually—SIFs let fund houses take short positions through derivatives, aligning Indian products with global trends favouring tactical and hedged strategies. Sebi has capped short exposure at 25% under SIF but hasn't set a minimum. This lets fund houses launch 'long-short' funds that take no short exposure—essentially running like traditional long-only products. The question isn't whether the tools exist—but whether they'll be used actively and effectively, or if the long-short promise gets diluted in execution.

Key questions: Though forward-looking, the SIF framework raises key questions: (i) Do fund managers have the conviction and skill to short effectively in India's growing market? (ii) If Category III AIFs haven't embraced shorting despite years of flexibility, will SIFs do better? (iii) Will SIFs differ meaningfully from long-only funds? (iv) Are there enough distributors to sell them? (v) And are Indian fund houses truly ready—technically and institutionally—to handle the risks of complex derivative strategies?