SIFs: A tactical tool for smarter investing—but is it right for you?

SIFs use derivatives to take long and short positions, capturing opportunities in bull, bear or range-bound mkts

- Jash Kriplani

When markets fall, most investors lose sleep.

But a new breed of funds has been designed to make money even when stocks go south. Specialized Investment Funds (SIFs), introduced by the Securities and Exchange Board of India (Sebi) earlier this year, mark the arrival of a new product category.

Unlike traditional mutual funds that can only take long positions (i.e. buy and hold stocks expecting prices to rise), SIFs give fund managers the flexibility to also profit from a decline in stock prices. So far, three asset management companies—Edelweiss, Quant, and SBI—have launched their first set of SIFs.

How it works

SIFs can invest in long and short strategies. Unlike traditional MFs that thrive mainly when markets rise, SIFs aren't tied to one direction. They can capture opportunities in a bull market, but also generate returns during bearish phases or when markets are flat and range-bound. “SIFs are aimed at optimizing portfolio returns and reduce the risk at the same time,” said Bhavesh Jain, co-head of factor investing, Edelweiss AMC.

To achieve this, SIFs rely on equity derivatives market, including futures and options (F&O) instrument. These allow traders to take both long and short positions on a stock—betting on whether its price will rise or fall—and make money if they’re right. It means that even when markets decline, SIFs can make profit with right positions.

Gaining from a downside

Using derivative strategies like covered calls or short strangles, fund managers can earn profits in market cycles that are flat, range-bound, or unlikely to see large gains.